Financial Implications of Brexit

A seismic shock of global proportions was registered in London on June 22 when the British people voted to leave the European Union. Named Brexit by the media, the votes surprised most pundits and analysts who felt there was no way such an outcome could be foreseen.

Both Current and Long-Term Implications

To properly understand the effect of the Brexit referendum results, one must look both to the immediate aftermath and the longer-term consequences. In reality, the aftershocks from this vote continue to be felt worldwide. No one can accurately predict how significant and far-reaching the ultimate results will be to the UK, EU or to other countries.

From an immediate perspective, the quantitative impact was readily measurable. For example:

• The British pound has dropped to a 30-year low
• 10-year U.S. treasuries have dropped to the lowest level on record
• Precious metals have recorded record-breaking increases, with gold up 24 percent for the year
• The U.S. dollar has gained value against every world currency as investors seek safe-haven assets

Beyond these objective indicators of how disruptive this vote is, the market movement signals an underlying concern over what this change will mean over the longer-term. As most economists state, the markets hate uncertainty, and Brexit introduced massive waves of uncertainty across many fronts.

A Global Matter

As indicated by the above factors, the ultimate measure of Brexit’s consequences will be global in nature. The very idea of leaving the UK is feeding sentiments in the citizenry of several other UK members, and there is even discussion of whether the multi-national organization will survive this sense of rebellion.

Even in the United States a number of pundits are indicating their belief the attitudes underlying the UK vote will further exacerbate the current sentiments in the current political sentiments. The very fact that it is a point of discussion has startled many long-term observers.

On a more strategic level, many investors, economists and other analysts are concerned about the psychological impact of this seemingly grassroots rebellion. The continuing worldwide economic malaise is fighting off a number of growing problems and concerns. These include:

• Growing fear over the potential of the Italian financial and banking system
• Potential for an international currency war in a paper-currency global economy
• Unknowns about China’s status and potential actions
• Unsustainable deficit spending by central banks facing historically high and massive debts

Brexit has many wondering if the strain it has created will soon cause a true collapse with even greater damage when any one or more of these issues adds to the relentlessly bad economic news.

David Milberg is a financial expert in NYC.