The political elites and many in the economic community warned of dire consequences should Britain vote to leave the European Union. Immediately following the announcement of the vote equity markets worldwide drop significantly. However, one week later they have rebounded and are about back to where they started.
The action of the equities markets suggest either the predicted dire consequences were severely exaggerated, or as an alternative, equity markets with the assistance of continuous central banker interventions no longer believe that stock valuations can go down. Neither is very comforting.
How the UK’s exit from the EU will affect the world economy remains to be seen. The Daily Reckoning suggests that political elite Progressives will take a play out of Obama associate Rahm Emanuel strategy book, who infamously said: “You never want a serious crisis to go to waste.” Using this strategy, they will use the Brexit vote as an excuse for more central bank spending and interventions into the economy. Why not, that strategy has failed for the last eight years so let’s double up on it.
The Daily Reckoning reports that since 2009 central banks have printed over $12 trillion. In addition, they have made 654 interest cuts worldwide. This has succeeded in creating equity bottles that have made the wealthy wealthier.
The Daily Reckoning expects more Quantitative Easing, QE 4, and an even more radical policy called “helicopter money” where the Fed basically froze money to the masses. These radical steps are not taken out of stupidity. Instead, they are an acknowledgment by central banks that we are reaching the end game. Without continuous and more aggressive interventions, the rebalancing of the economy will begin and it will be painful. Irrespective of the central banks’ actions, that rebalancing will occur. It is only a matter of time.