Brexit – Good or Bad for America?

Jun 18th, 2016 by Riaan Nel in Global Economy, Global Investments, News


This coming Thursday, June 23rd, is the date of the much anticipated British referendum on whether the United Kingdom should remain a member of the European Union or leave.  As of today polls suggest that voters are evenly split.  The Economist magazine in a recent article made the case for how bad Britain’s exit or Brexit would be, not only for the United Kingdom, but for Europe and the West.  The argument goes that in both the economic and security spheres the West and Britain would be harmed if the electorate votes for a Brexit. 


I agree from an economic standpoint there seems to be a strong case that a Brexit would be disadvantageous for the United Kingdom.  The capital markets would probably be negatively impacted in the short-term by a Brexit, which would not be good for America or American investors.  However, my sense is that it would be a short lived “market dislocation” and that the Brexit won’t have a long-term negative impact on global capital markets nor American capital markets. 


Financial markets are currently jittery in the run up to the election on Thursday.  The British pound has fallen to its lowest level against the dollar since 2009.  Markets like predictability and stability.  The prospect of the uncoupling of the world’s fifth largest economy from the European Union, and the unmooring of the strongest military power within the Union, as well as the world’s fifth largest defense spender, causes nervousness in the financial markets. 


I don’t believe that global markets would be harmed by Britain leaving the EU.  I could see where it would damage the British economy in the long run, but I don’t see where it would hurt the United States economically.  We have to be concerned about the short-term market dislocations that might occur if the “leave” vote wins.  It very well might be a buying opportunity for investors.  I am concerned that Brexit might be another factor that could, in conjunction with other issues, signal an end to the 7 year bull market in US equities. 


From a security perspective, the Economist magazine makes numerous arguments why a Brexit would diminish Europe and the West’s security.  However, the West’s security is solidly anchored in American military supremacy and NATO.  Britain’s exit does not threaten NATO’s cohesiveness.  I don’t find the security arguments compelling.  Not for us, not for Britain, and not for NATO. 


My conclusion is a Brexit is neither bad nor good for America. 

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