British Independence Day
As Americans get ready to celebrate Independence Day on July 4 with fireworks and cookouts, the British have just declared their own independence. It all happened on June 23, although the final results were not known until June 24.
When the American colonists declared their independence from Great Britain, they ended up with a war. King George III would not allow this secession without a fight. Of course, as with most wars, the leader is not the one doing the actual fighting.
With 52% of the voters of the United Kingdom declaring their secession from the European Union, luckily they will not likely meet the same fate as the American colonists. Nobody expects the EU to send in an army to push down the rebellion.
Still, that doesn’t mean there aren’t a lot of threats. A majority of the UK voters — by a slim margin — made it known that they have had enough. They don’t want to be ruled by a bunch of bureaucrats in Brussels, Belgium, especially when they have little say in the game.
To be sure, the “leave” voters had their differing reasons for wanting to leave the EU. But the establishment was united in its efforts to prevent this. The EU is the foundation of the globalists who want a new world order or a one-world government. This is a major disruption to their plans, so they are not going to go down quietly.
There are stories about some voters having regrets in voting to leave. If the establishment media finds two people out of 65 million to say this, then this is enough for them to report the regret.
Some are calling for a do-over. It is like a child that loses a game and then says, “Let’s play best two out of three.” And if that doesn’t work, then it is the best three out of five.
But in the case of the establishment, they don’t want the best two out of three. They just want another vote. If their side wins, then that would be the final one.
Another option for the EU and the majority of politicians in the UK is to simply not obey the outcome of the vote. They could just refuse to abide by the referendum. The problem with this strategy, which I think they recognize, is that they would just lose more legitimacy. It would send a clear message to the voters that their opinions really don’t mean anything.
It is ironic that much of the left, who like to so often champion democracy, are siding with the EU, which is mostly a bunch of unelected regulators. They are democrats as long as the voters choose “correctly.” If not, then they are too stupid to decide.
Get to the Back of the Line
Since it is politically difficult at this point to simply not obey the referendum, others have come up with the strategy of using hard-handed tactics in the form of threats. If the child doesn’t get to play another game, then he will stomp his feet or threaten to hold his breath.
Much of the establishment is playing the card that the UK voters will regret their decision because they will be left out of trade agreements. But if there is a major disruption in trade, it will be because of the EU and the establishment backing that wants to punish the UK voters for not obeying. They do not care if it hurts other European nations in the process.
One thing you don’t hear mentioned a lot from the establishment media is that Norway and Switzerland never joined the EU, yet they are doing just fine. In fact, Switzerland is far better off than most Western European countries.
The Swiss are able to trade with other Europeans, but they don’t have all of the rules and regulations that go with it. Would the people of the UK be any worse off from the Swiss? Perhaps they would, if the EU wants to punish them and actually prevent trade.
And don’t think for a minute that it is just European politicians playing this game. To all Americans, please know that our illustrious president (note the sarcasm) has not been short on threats.
Obama originally said that if the UK voters decide to leave, then it would put them at the “back of the queue” in terms of negotiating for free trade. Since the vote, the administration has stood by the comments. Again, this isn’t Obama just offering up his opinion. It is Obama threatening to punish the UK voters for not obeying the wishes of the establishment.
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When Obama talks about negotiating free trade, we have to ask a simple question: What is there to negotiate?
When it comes to trade agreements such as NAFTA, GATT, and TPP, these are often labeled as free-trade agreements. But you don’t need hundreds or thousands of pages of regulations to have free trade. You simply need the government on both sides to step out of the way.
These trade agreements are not free trade. They are managed trade. They could be viewed favorably if they keep others from erecting tariffs, but why do you need hundreds of pages just to do that?
In this sense, this may be one economic issue where I tend to agree more with the left than I do with some fiscal conservatives. But the left often opposes these managed trade agreements for the wrong reasons.
There is no question that free trade makes people better off and increases living standards. If you have a small society that refuses to trade with the outside world, it is a very primitive society.
People trade because they deem themselves better off. It doesn’t matter if you are making an exchange with a neighbor or a guy in China whom you’ve never met.
But the UK doesn’t have to be part of the EU to have free trade, unless the EU bureaucrats want to punish the UK voters (and their own people) by simply not allowing it to happen.
And the same goes for Obama. The only way Obama can actually punish the UK is by actively preventing trade from happening.
Economic Cause and Effect
The British exit certainly disrupted the financial markets when the results came in. The results were unexpected. Almost nobody saw it coming.
The financial markets — in this case, stocks — do not like surprises. They don’t like these unexpected events that disrupt the status quo. That is why they initially went down so much.
There has been a rush to safety, but different investors view different assets as safe. Bonds went up all over the place. They 10-year yield in the U.S. dropped below 1.5%. The 10-year yield in Germany went negative. Meanwhile, the U.S. dollar and gold were up at the same time.
The European Central Bank and the Bank of England both reacted with promises of fresh monetary inflation. Even though the British threw off the bureaucrats in Brussels, they are still stuck with the bureaucrats at home.
Still, decentralization tends to be better for liberty in the long run.
We should expect the euro and the British pound to both fall more. It should not surprise us if the euro hits par with the dollar. It could even happen with the pound.
So while I often rail against the dollar, it may continue to find strength in the weakness of others.
If the British economy goes into recession, the establishment will blame it on the vote to leave the EU. But that could have easily happened anyway without a vote.
And what will the “leave” critics say when much of the rest of Western Europe goes into recession and financial turmoil? Will they blame the UK voters for that, too?
It is already an economic disaster in Greece, Spain, and many other parts of Western Europe. Maybe that is why a majority of the UK voters wanted out. They have enough problems without dealing with the problems of others.
Until next time,
Geoffrey Pike for Wealth Daily
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