The big surprise in England was the recent voting in support of divestiture with the European Union.   It was a complete surprise.   All of the tipsters had it down as a shoo-in for retaining the present arrangement.   Since the voting was a referendum, it meant that the government was out of touch with the electorate.   That is a serious matter. But it will probably not bring on a recession or depression.

The economy of Britain is currently brisk.  There appears to be little risk of a recession. Thus, the period of negotiation will move ahead with a stable background, no emergencies, no untoward circumstances. But how often have we said this, and then, whammo,

The wining party, the Conservatives, promises to cut taxes, and to cut social benefits That and other changes in compensation and incentives are supposed to make British companies more competitive.

Brexit also brings up the issue of mobility of workers.  One of the benefits that was promised workers at the time of joining together of the European Union was that workers would be free to find employment throughout the Union.  No other benefit was as valuable as this one.  Brexit was the safe harbor..  In recent times this job insurance has appeared much fainter than before.

Then there is the matter of trustworthiness.  The English have a long history of taking their own way on big issues like trade.  Brexit will likely be successful, because It will give more power of decision to English management as well as workers.

Brexit will have major impact on the economy of Britain, but this will be in the long term.  It will come from the greater use of incentives, and downsizing production.  It will also be deflationary

In the meantime British trade will find its way.   Brokers will quickly learn the ways of the new era.

Notes from a talk at the Palo Alto Club on Thursday, July 14, 2016

T.G. Herrick

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Fresh Start

The vote for Britain to move away from Europe should not be a surprise.  England is a singular nation, more interested in being itself rather than being a
cooperating participant.  The vote to separate from the European Union is in keeping with at the pattern of British experience on the water and in the meeting room.

Britain always prefers to travel alone. This preference goes back many centuries — back to when England was invited to join the Continental System. It refused and turned down a similar invitation with Spain and France five hundred years ago.   It turned out to be precisely the right thing to do.

These historical parallels indicate that nothing has changed in a philosophical or fundamental way.  The basis of strength of the Common Market in Europe, which is to allow markets to a show the way, will run into unexpected difficulties by 2019.  Britain will then be grateful that it stayed outside and free.


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Russian Crisis In Second Quarter 2017

Approximately one year from now the western world will likely be confronted with a bankrupt Russia and the early stages of a business recession among a majority of the industrial nations.

This will be the most serious challenge the west has faced since the breakup of th e Soviet Union.  The threat then was the possibility of an out of control Soviet state on the loose.

The same threat will reappear in about one year from now.  But this time the counter-force will be a much weaker military force on the part of the United States and the unknown influence of the Moslem presence.

This will wake up the petroleum groups and send crude oil prices way up, past last summer’s high.  It will catch many oil – deficit emerging nations unprepared.  Plastic manufactures will be able to raise prices more easily than any time in the past four years.

Overall, it will not be a beneficial time for the market.

T.G. Herrick

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