A Journal of People Report
The verdict was delivered. The world was shocked. And then came the epiphany.
Britain has voted for ‘Brexit’, as it is being called, notwithstanding the warnings from economists, experts, businessmen and political leaders.
How would Brexit effect the economy of Britain?
Alan Greenspan, the chairman of the U.S. Federal Reserve during the 1987 stock market crash and the bursting of the dot-com bubble, told CNBC, in an interview, “There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away”.
Apparently the 51.9 percent who voted for ‘Brexit’ disagreed. To them appealed the Leave Campaign’s slogan, ‘Take Control’. Shortly after the result of the referendum was out, Nigel Farage, the UKIP (United Kingdom Independence Party) leader, described 23rd June, the day the referendum was held as the, ‘Independence Day’ for Britain.
Unfortunately, this nationalistic zeal failed to save the British pound from dropping more than 10 percent to a 30-year low while the S&P 500 index of U.S. stocks fell 2.6 percent Friday morning after the Brexit vote.
Quoting Greenspan, a CNBC report said, ‘The former Fed chairman said that the root of the “British problem is far more widespread.” He said the result of the referendum will “almost surely” lead to the Scottish National Party trying to “resurrect Scottish Independence.”’
He further added, ‘Brexit is not the end of the set of problems, which I always thought were going to start with the euro because the euro is a very serious problem in that the southern part of the euro zone is being funded by the northern part and the European Central Bank.’
The report said, ‘Even with that in mind, the European Central Bank is limited in what it can do because these fundamental problems like the stagnation of real incomes don’t have easy solutions, Greenspan told CNBC.
“There’s a certain amount that monetary policy can do, but our problem is fundamentally fiscal,” he said, adding that this is true in the United States as well as “every major country in Europe.”’
The present situation and Greenspan’s opinion echo those of George Soros who earned fame by betting against the pound in 1992.
In an opinion piece in the Guardian newspaper, Soros predicted that in the event of a British exit, or Brexit, the pound would fall by at least 15 percent, and possibly more than 20 percent, to below $1.15 from its current level of around $1.46.
He further wrote that, “The value of the pound would decline precipitously. It would also have an immediate and dramatic impact on financial markets, investment, prices and jobs.
“I would expect this devaluation to be bigger and also more disruptive than the 15 percent devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors.
“I would expect this devaluation to be bigger and also more disruptive than the 15 percent devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors.”
Expressing his concern about speculators, Soros wrote, “Today, there are speculative forces in the markets much bigger and more powerful. And they will be eager to exploit any miscalculations by the British government or British voters.
“Brexit would make some people very rich – but most voters considerably poorer”.
The consequence of this gargantuan political event will have dire consequence both in the respect of Britain and the World. Greenspan predicted last month in an interview with the Fox Business that, the governments are going to face another financial crisis as economies struggle to pay for entitlement programs.
How the present world order reacts to these political and economic crises, is a matter of utmost importance and thus asks for close observation.