Cautionary Tales from Brexit, Grexit and U.S Budget Battles
wsj.com
wsj.com
For example, the FTSE 100 rose largely because of the fall of the pound (which has remained low): most of the FTSE 100 companies have income largely denominated in non-pound currencies but are themselves valued in pounds in the FTSE. So a fall of the pound immediately makes them more valuable, measured in pounds.
Other effects were ignored, for example last I checked commercial real estate was hit hard, and all of the commercial real estate funds closed down post brexit. The London private property market was also hit, with the market nearly stalled despite a retreat on prices.
And that's all before Brexist has actually happened, when most people didn't actually expect it to happen and therefore contingencies are only slowly coming online (and many won't until we know that the trigger will actually be pulled and what the consequences are).
Then there is the classic use of a non-zero y axis.
Or the use of Grexit, which didn't happen. So maybe the dire consequences that were predicted didn't happen because the event that was thought to precipitate those consequences was averted??
Geez.
And so on. There's more, but the picture is clear enough.
This article is either shockingly and unprofessionally misinformed, or deliberately misleading.
Warnings abounded in 2015 that if Greece rejected an international bailout, it could spark a sovereign default or a banking crisis or Greece being cast off the euro. Greece’s economy is far from a success story, but it hasn’t gone bankrupt. Its banking system has been battered and drained of deposits, but hasn’t collapsed. It remains in the euro.
But Greece didn't reject the international bailout; it accepted it (despite a referendum voting "no", Tsipras signed it anyway). So this article is arguing: Experts predicted ~A -> B, but since in reality both A and ~B came to pass, experts are wrong. That's... not valid reasoning. Presumably the experts would argue that to the extent Greece isn't (quite) bankrupt, it's precisely because it heeded their dire warnings, and got cold feet about rejecting the bailout package.
I still think it's too early to tell what the impact of events like Brexit and Euro crisis will be. As humans, we're wired for immediate feedback loops, but that's not usually how the world works. We (and particularly the media) tend to look for immediate impact, but it's way too early to say that there will be no consequences from all the things that have been happening in 2016.
Maybe the right level of governance is the one people choose from themselves instead of the one into which they were born.
I may be being overly facile, but "I consent to the government that I choose" sounds almost exactly like "I do not consent to being governed" to me. (Perhaps you mean that one gets to make such a choice once, rather than at will and repeatedly; but then when should such a choice be made?)
And then?
Of course, maybe it won't happen that way. But pointing out that people have gone to war over this stuff throughout history is not really helping.
Depends. I much prefer personal autonomy over national sovereignty. While I understand that many people feel strong national identification, I lost this long time ago, maybe because I felt Czecho-Slovak but my country split, maybe because I see the pain of my grand-father due to his Palestinian origin.
Fortunately, currently for me the soverenity of states usually result mostly in bureocratic annoyances, such as when a colleague of mine couldn't join me on a face-to-face meeting, because he is from Ukraine and would first need to obtain visa for Ireland.
The EU has its flaws too, of course. Because of its necessarily top-down nature, it tends towards grand aspirational things which it can't quite achieve very well because national governments retain too much power, so it interferes in things where national governments care a little less, not always wisely. It should have more regionalism and subsidiarity.
EU trade deals are still intact, free movement is still in place. How can the economists' post-Brexit predictions fall foul when we are still pre-Brexit?
http://www.ftse.com/products/downloads/FTSE_UK_Index_Series_...
Just to add a bit of detail on the OP's note on the FTSE 100 and the pound depreciation: The point is that the FTSE 100 is composed of the largest UK companies, most of which are global corporations with most of their earnings and also a large part of their ownership coming from outside of the UK. So their intrinsic value is not expected to be affected all that much by Brexit. However, the FTSE 100 measures their value in GBP, which has lost about 10% in value after Brexit. So you would expect the FTSE 100 to increase (if nothing else changes, of course).
My point is that if I am right, then the devaluation is taken into account in the numerator and the denominator so cancelled and the FTSE isn't correlated with the £.
Nor should it be: The problem with the FTSE 100 and Brexit is not an arithmetic currency conversion topic (which would not be relevant as FTSE is unitless). The "problem" with the FTSE 100 is that it is mainly composed of global corporations for which the British market (and hence the British pound) is of little importance to their daily business but whose shares happen to be traded in GBP.
Take BP as an example - their main product is oil, which is usually traded in USD, they source their oil from around the globe and their assets (infrastructure plus proven resources, which are really future oil revenues and thus USD assets) are also not UK-specific. Thus, it would really make more sense to have the value of BP be expressed in USD. So, let's say BP is worth 100 billion USD (it isn't). Prior to Brexit, that amounted to about 68 billion GBP. After Brexit, BP is still worth the same as before as it is not really affected by any UK-specific economic shock, so 100 billion USD. But now, this translates to 76.1 billion GBP (as the GBP has lost value).
So you end up with an about 12% increase in the value of BP as expressed in GBP. And this is what is relevant for the FTSE 100, so if this happens to all the stocks in the FTSE 100, it will rise by 12% even though nothing changed for the companies in it. Yes, the FTSE 100 is calculated by diving by the index divisor in GBP, but this divisor was set as the market cap of all firms in GBP (at that time) at t = 0 and will not be re-computed based on currency fluctuations.
This isn't "wrong". It's just that it doesn't make sense to point to this specific rise of the FTSE 100 as a sign that the U.K. economy is doing great. The problem is also quite specific to the FTSE 100 - for companies that sell most of their products and services in GBP and that incur most of their costs in GBP, being valued in GBP is the "correct" measure (meaning that their market value in GBP should remain unchanged when the value of the pound fluctuates given that there are no other effects on their business).
Just because you don't develop cancer the very next day doesn't mean you won't suffer long-term health consequences[0]. Likewise, just because the outlook two months later doesn't look dire, that doesn't mean the UK won't suffer long-term economic consequences from the vote.
(The disease analogy breaks down when you also factor in the uncertainty around whether Article 50 would even be invoked after the vote, or the uncertainty around what the ultimate outcome of the exit negotiations will be.)
[0] Likewise, just because you develop cancer, that doesn't exactly mean that you got it because of that exposure either.
Also, maybe if the economic consequences had been really bad after 2 months, people would be trying to avoid Brexit in the first place.
The Brexit is something that will be judged in a generation.
The priests said the gods would be angry. When the punishment didn't happen, should we assume we dodged a bullet and the gods decided to be merciful, or should we assume the priests don't really speak for the gods?
Predicing there would be a housing bubble in 2001 was merely a case of seeing the changes in the law under Clinton, the change in financial settings at the federal reserve under Bush due to the dotcom crash and 9/11, and looking at the way the incentives were set up with Fannie Mae and Freddie Mac. Many people said you can't predict such a thing and in 2006 it was common to see on TV the claim that there was no housing bubble, and that the economy was fundamentally sound and I heard this a great deal from people in day to day life who were buying houses and thought I was insane to think houses were overpriced. I'm not a genius, I just read the right article in 2001 from a "economic doomsayer" and between 2001 and 2008 as far as everyone was concerned, I was crazy, and then after 2008 instantaneously "it was obvious" there was a housing bubble and thus my insight was pointless.
The lesson here is to look at the fundamentals, but don't bet on the timing. I invested against the housing market in 2002-2007. I wish I had known about the existence of CDOs. I got out in 2007. I was a year early. You can't predict the timing.
But you can take fundamentals to the bank.
David Cameron suggested a Brexit might spark WW3. Economists claimed it would decimate the British economy in short order. These same naysayers are still prophesying, this time saying that the collapse is gradual but imminent.
Your average "Main Street" person is tired of being talked down to by ivory tower economists and globalists, and they're responding with support for populist movements.
I predict this will reach a boiling point in the US when Fed monetary policy results in the opposite intended reaction.
The idea that the negative impact of Brexit would be fully realized while people are still actively discussing why despite the public, but not legally binding, commitments it still might never happen at all, is, well, ludicrous in the extreme.