British voters delivered a shock to global markets on Thursday with their 52-48% vote to leave the European Union. When the turmoil subsides, more sober-minded Brits may come to regret their decision to abandon their four-decade membership in the continental-sized common market.
For now, Great Britain remains a full member of the EU. Once it initiates its exit under Article 50 of the Lisbon Treaty, divorce proceedings could take as long as two years. Meanwhile, Britain remains the world’s fifth largest economy, a nation open to the world and a natural ally of the United States.
David Beckworth has this to say about Brexit causing the biggest global monetary shock since 2008 at his blog:
Brexit is the biggest global monetary shock since 2008. This could be the tipping point that turns the existing global slowdown of 2016 into a global recession. Here is why.
First, Brexit is adding further strength to an already overvalued dollar. The trade weighted dollar had appreciated roughly 25 percent between mid-2015 and early-2016. That is a very sharp increase in so short a time. It has come down some, but not much as seen in the figure below (red line):
Scott Sumner discusses how the Brexit is not about Britain at the Library of Economics and Liberty's Econlog:
I'm seeing a lot of confusion about the implications of Brexit. Here are two common misconceptions:
1. Some people see it as a real shock, whereas it's primarily a monetary shock.
2. Some see it affecting Britain's economy by disrupting trade, whereas it actually hurts the eurozone more, by depressing expected NGDP growth. The real effects are often overstated; Norway and Switzerland do fine outside the EU.
Is the "Brexit" – the possible departure of the U.K. from the European Union – a major sign of a populist revolt against bureaucracy? It would seem so, and the warnings of potential consequences seem dire.
How many people does it take to change a lightbulb in England? Depends on what the European Union (EU) says.
A priest in Suffolk, England used to hire a man to climb a ladder to change his lightbulbs. That was fine until the European Union Working at Heights Directive banned this activity so that now the priest must spend 1,700 pounds (about $2,000).
Daniel Griswold, Director of the Program on the American Economy & Globalization, had this to say on leaving a free-trade zone:
Both sides are exaggerating the consequences of Britain's vote on Thursday whether to stay in the EU. And both sides have good and not-so-good arguments to back their case. All things considered, there is probably more risk for Britain in leaving the huge free-trade area on its doorstep than in remaining and working for reform within the EU.