I was not surprised by the “Brexit” vote. It fits. Most seem to believe that the 2008-2009 financial crisis, Great Recession, and economic recovery finished this economic bear cycle and that economic growth would now develop in a sustained way to the next economic growth cycle, extending years in the future.
Baby Boomers would retire in economic bliss. I never bought that. I think that it is possible that the worst is yet to come, but not this week … not next month … not this year. There is another leg down coming in this economic cycle that will last longer than it should.
The world economy is a dripping mess and the central bankers are recognizing that they are not succeeding in fixing it with monetary policy. Trillions of dollars in QE, negative nominal and real interest rates, along with Trillions of dollars in stimulus and a massive accumulation of debt has got us where we are today.
The global economy is performing poorly. The world needs economic reforms but is, in fact, backing away from them adopting a “me first,” “nativist,” “protectionist.” “every man for himself,” “the rest of the world can take care of themselves” mindset.
A thousand economists wrote President Herbert Hoover asking him to veto the Smoot Hawley protectionist tariffs in 1930. Yet Congress passed the bill and he signed it into law deepening the retrenchment in the global economy pushing deeper into depression. Looking back, many ask, “How they could do that?” Hoover wasn’t an idiot, but he went with the emotion that was all around him rather than his head.
The American public had lost faith in economists, lost faith in their institutions, lost faith in government. The public didn’t have a clue how protectionism would hurt them. All they knew was that they were hurting then and wanted something to change.
Does that remind you of anything going on today?
When there is angst and people are uncomfortable, they do not always act rationally, be that individuals or countries. This is a global as well as domestic condition manifesting itself with the British public the same as it is here.
Japan, China, the EU, Brazil, the U.S. and most other countries, large and small, are struggling to meet the expectations of their citizens and are failing. Beijing is creating a debt bubble to try to perpetuate its economic illusion. The EU was using negative interest rates. The Saudis are trying to break their competitors in the oil business. Today, the Brits leave the EU. Tomorrow it will be someone or something else.
Protectionist barriers start to rise. Borders close as walls are built. Trade wars flare and eventually armies move to settle things that trade wars didn’t. As Mark Twain said, “History doesn’t repeat itself, but it rhymes.”
The betting markets and financial markets expected the Brits to vote to stay in the EU because they understood the financial and governmental repercussions of leaving would be debilitating for all and just couldn’t believe that the public didn’t appreciate that.
They assumed everyone would understand that and vote intelligently. Instead the populists see these elites pass trade agreements and create global institutions and unions that they have felt no benefit from. The wealthy have gotten wealthier and the clerks at Casey’s don’t get paid anywhere near $15 hour.
Those that voted to leave the EU in Britain “wanted their country back,” “wanted their borders back,” “didn’t want to be told by Brussels what to do.” It is all the same here.
They are right about Washington’s incompetence, but don’t get that the Washington incompetence is a voter-driven reflection of themselves. They feed the partisanship wars that have made governance impossible and then blame them for no governance.
Donald Trump gets it better than anyone and is the demagogue using the themes to his great political benefit and success.
A very discontented U.S. electorate was responding to both Comrade Bernie and Das Trump. Trump is feeding off this and it is so powerful he can do everything else wrong and it doesn’t matter. Donald sees the vote outcome from the Brits as his being on the right track to where he has always believed this was going.
Don’t kid yourself, the uglier this gets, the better Das Trump is going to do in the polls and that is his only path to victory this fall. The uglier this gets, the more angst will increase, angry voters who have never voted come out to vote this time and Hillary will look like another failed institution that got them in this much misery.
They are looking for someone to hate, to scapegoat, or fear and Trump feeds them red meat.
That is what happened in the British way in the UK. It is well on the way to happening here. Economists and historians cannot believe that educated people would repeat the mistakes of the past, but in reality, if you asked the average voter what Smoot-Hawley was, they would think that you were talking about a motorcycle.
That makes me “elite,” now in that group that the public has decided doesn’t know anything. It won’t matter what I think. The “elites” are not in control. The “Brexit” is just one instance of what is likely to become crisis to crisis reality.
There is no reason that the transition of the UK leaving the EU will go well. Britain is now in chaos politically with no leadership. They are going back to the old days when all they did is fight with one another.
I don’t think that this will be an “absorb the bad news of Brexit and then everything will be fine and go back to the way it was or better” sort of thing. Pandora’s box is open and more bad stuff will come flying out.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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