Tuesday, July 05, 2016

Brexit: Some Observations and Comments

I am not certain what impact Brexit will have on the global economy and the people that voted for it. I am reasonably certain that that as Guharpal Singh points out - this is an event on the scale of India's independence - a tectonic shift in political terms.

I see that a lot of Indian observers are taking cheap shots at the Brits. That is only natural. After being accused of being a bunch of congential fuckups by the Brit counterparts - the Indians are finally getting a chance to return the favor.

Based on the manner in which opportunistic politicians are exiting the Leave campaign, I am guessing the foreseeable future will be quite painful for the voters. Opportunistic politicians are inherently bottom feeders, when there is nothing to feed on - they will leave.

A lot of Brits are feeling regret over their vote - but as others have pointed out - there is no do-over on this. Conducting the referendum again will not annul the effects of the Brexit drama. It will only make matters worse as it will paint the British leadership as being even more feckless than it currently appears.

The only way out of this mess is to annul the results of the referendum because they are somehow fraudulent and unrepresentative of public sentiment. There certainly are clear allegations of misconduct and fraudulent behavior by Leave campaigners. They made promises they had no intention of keeping. The assassination of Jo Cox certainly points to a campaign of violence being initiated by fringe elements of the Leave campaign, but there is nothing available to suggest that Leave campaigners physically interfered with the voters themselves or their ability to physically cast their votes. Absent clear evidence that the Leave campaign actually tampered with the physical electoral process during the referendum, there is no cause at the present time to doubt the veracity of the results.

Basically - whatever suffering results from Brexit - the people that voted have only themselves to blame for this. I guess this should serve as a warning to people who vote without knowing what they actually are voting for. If you are so stupid that you don't bother to read up on the issues before you go off and press the button, you deserve every bit of what is coming to you.

As regards the rest of the world suffering from Brexit, it is very sad, but that is the way it is. The world is more interconnected than we realize and when even on segment of the populations . A majority of the suffering is financial, it mainly a consequences of several major financial arteries being routed via London after WWII. These arteries are the real life-blood of the British economy.

When WWII ended, Europe lay in ruins only Britain had any buildings left standing. That is why the financial network that supported American investment in Post-War Europe (via the Marshall Plan) was routed through London. One might visualize this network as a series of wires connecting banks in the US to banks in continental Europe. Debt in various forms is transmitted back and forth over these wires and the US economy is physically tied to European economies. As debt moves back and forth on these "wires" - wealth in the form of goods and services flows back and forth over national borders. A part of that flow of goods and services is the flow of labor between these countries. You might say that the paper flow of capital or debt is collaterized or ballasted with the flows of goods, services and labor.

Every time a correlated flow of debt and goods/services/labor occurs along these wires, two things happen simultaneously. Firstly wealth is carefully trickled into Swiss bank accounts and a small (almost imperceptible) improvement in the British quality of life occurs. It is this small improvement that has allowed Britain to rebuild itself after WWII and collapse of the empire. The unusual leverage that Britian uses to "punch above its status" is mainly the result of it exploiting the benefits of this peculiar Post-War cash flow pattern.

The Brexit drama should have been a case of political theatre, like a Pakistani General negotiation with a gun to his own head - but instead the actors lost control of the scene and the very financial channels that keep the British economy funded in the first place are in danger of being relocated. This relocation will take time but once the process starts it will be irreversible.

If Britain actually carries through on the referendum and activates Article 50. It is likely that Northern Ireland and Scotland will follow. In terms of nuclear security implications, HMNB at Clyde will have to be relocated or an arrangement similar to what the Russians reached with Ukraine over the use of Sevastapol will have to be reached between England+Wales, and independent Scotland. If such an agreement cannot be reached, the Scotland will retain ownership of the nuclear submarines and any warheads therein. The United Kingdom will no longer be a part of the P5 or the established nuclear weapons states - Scotland will end up taking their place on the table.


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