Inflationomics

The Brexit Aftermath

Someone recently asked me whether I thought there would be a war as a result of the British electing to exit the European Union (EU).  After all, she said, President Lincoln went to war when the Confederate States of America seceded from the United States of America.

While I don’t believe we’ll see bullets flying anytime soon, that doesn’t mean there couldn’t be a trade war or some other more subtle kind of war; i.e., limits to immigration, tariffs, capital controls, and quotas of various kinds.  We’ll probably also see more separatist movements around the world…perhaps in Quebec, Scotland, Northern Ireland, Catalonia, or Texas, to name a few.

The problems arose as the federal government of Brussels expanded its powers; more countries chafed at the additional regulations.  At the same time, the European Central Bank (ECB) expanded its easy-money policies…doing whatever it took…to “stabilize” the economy; i.e., to appease both the more responsible governments of the north and the less responsible governments of the south.  Unfortunately, it wasn’t enough to keep the British happy.  And on top of that, there was the mass immigration from Poland with ever more refugees on the horizon.

So now the first question is, what kind of reprisals will follow Great Britain’s withdrawal from the EU?  Never mind that the British Pound sank 10% as a result of the exit vote.  If the EU is easy on the British, more countries may be tempted to leave.  If they are harsh, British banks and businesses could fail and take down other banks with them.  The second question is, who will follow Great Britain out of the EU?

My guess: countries with unpayable debts will be most eager to exit the EU and/or the Euro.  Why subject themselves to the strictures of the Euro and Brussels when they could have their own currency and their own destiny; i.e., be like Great Britain.  Of course, this doesn’t bode well for the Euro, either.  The more countries that leave the EU, the less demand for the Euro and the worse it will be for European banks that do business with the Euro.  Already investors are moving into U.S. dollars and Japanese yen.  If the Euro fails, there will be a world-wide banking crisis.

Of course, in this day and age of fiat currencies, the temptation will be to adopt a fiat currency that can be inflated into oblivion to “pay” the debts owed by the profligate governments who have more people on welfare or government employees than citizens who are paying taxes.  In short, all central banks know how to do is print more money (quantitative easing) and more recently, lower interest rate until they become negative, thus punishing savers and banks alike.  Perhaps some day, the central bankers will learn that quantitative easing and negative interest rates don’t stimulate the economy.  But until then…

It’s all the more important to hold the historically sound monies of the world…gold and/or silver.  Whether we see bullets flying or capital controls, immigration limits, or quotas of various kinds, precious metals will provide the insurance we need to see us through the difficult times and the destruction of fiat currencies.

Robert F. Sennholz

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