Monday, June 27, 2016

Recession Fears in the Eurozone?

As the stock markets around the world gave ground after the Brexit vote, pundits were quick to stoke the fears of a possible recession for Britain and for the Eurozone.  Goldman Sachs announced today their prediction of a 2017 recession in Britain.

Listening to these folks, you would think that the Eurozone had been humming right along until the Brexit vote.  Far from it.  The Eurozone has had net zero growth for more than a decade.  Just exactly what would the Eurozone be recessing from? Europe is economically stagnant and will remain so, with or without the Brexit vote.

As for the US, employment numbers, retail sales, durable goods have been cratering recently in the midst of the most sluggish economic recovery in American history.  Does anyone seriously think that Brexit has anything at all to do with America's absurdly weak economy, which has been growing since 2008 at less than half the historical growth rates for all prior American economic recoveries from recessions?

Brexit is largely irrelevant to economic growth in Europe, Britain or the US.  These economies are all stagnant and will remain so.  Only the wealthy and the bureaucracy are happy and prosperous in these economies.  The economic position of lower and middle incomes continues to deteriorate every single year and will continue to do so.

Economic growth requires free markets.  Free markets are rare and getting rarer in the Eurozone.  Some of the Brexit vote was a vote for free markets, though most was likely motivated by forced immigration.  In any event, until bureaucracies are reigned in, there is zero chance that Europe, Britain or the US will show any significant economic growth.  Brexit is irrelevant to this problem, unless it permits Britain to institute reforms on its own.  We shall see.

Meanwhile, stock markets assume that there will be strong economic growth in the future, an extremely unlikely scenario.    That's why stocks are five percent lower in the US today than than they were in November of 2014.  Once economies stop growing, stock markets, in time, will stop rising as well.

Brexit, while it may well be good for the Brits politically, is largely irrelevant to the economic future of Europe, Britain, or the US.

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