Thomas Palley: Brexit: The Day We Entered the Eye of the Maelstrom

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http://www.thomaspalley.com/?p=906

In this piece, Thomas Palley look sat the the Brexit vote in a practical way for U.S. politics. Recognizing both Dog Whistle politics and austerity politics for the destructive forces they are, he doesn't waste time calling 51% of Britons racist xenophobes, but addresses what the U.S. should do to avoid a similar outcome. The final recommendation? That Obama should drop support for the TPP, which makes him appear out of touch and non-responsive to voters, one of the key criticisms aimed at the EU by the "Leave" campaign.

Brexit: The Day We Entered the Eye of the Maelstrom

In years to come, the Brexit referendum may come to be seen as the day we entered the eye of the maelstrom that now promises enormous destruction. The immediate consequence looks to be a possible financial crisis, but even if that is avoided the other costs of Brexit will not be.

The European economy was already on the outer circle of the maelstrom. Brexit has swept it into the eye, accelerating the process whereby social alienation and bad economic outcomes produce bad political outcomes, and bad political outcomes produce worsened economic outcomes and further social alienation.

Economic implications

The leading edge of events will be financial markets. Even if an immediate financial bloodbath is contained, the reasonable expectation is for significant downside turbulence over the coming months that will ripple into the real economy. Moreover, a bloodbath now would not be panic. Instead, it can be rationally justified by the economic and political outlook and the fact that asset markets were already richly valued.

British financial markets and the British economy will be the epicenter. The shock to London’s stock market will hit wealth and household confidence, negatively impacting consumer spending and the United Kingdom (UK) real economy.

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