Britain's Humiliating Future Post Brexit

There will be another referendum. Britain will remain in Europe, but only after accepting humiliating terms that cut directly into British "exceptionalism", which Europe has been striving to accommodate for 43 years.

The impetus for this will be the looming dismemberment of the UK. The Scots did not vote in 2014 to remain in the UK in order to leave Europe. Northern Ireland may consider some type of union with Ireland in order to stay in the EU - by far the most shocking possible outcome from this sad charade. The people who rejected Europe did not intend to dismantle the UK. As the twin threats of Scottish and Northern Irish separation loom large, their opinions will begrudgingly change.

The next British election will be the key. Pro-Europe will stand against Anti-Europe with the sole issue being a call for another referendum, and this time the Pro-Europe voters, buttressed by new "protect the UK at all costs" voters, will actually show up. The result will be a landslide Pro-Europe majority, followed by a referendum with a similar landslide in favour of staying.

This will halt on-going negotiations between the UK and Europe, which will soon be triggered by the invocation of Article 50 of the Lisbon Treaty by Britain. After this is triggered, the Brits can only stay if every country in the European Union agrees. The price for staying will be very high - any British exceptionalism will be swept away.  The result of trying to go it alone will be even closer ties.

The last time Britain did something this stupid was the Suez Crisis, when the gunboats sailed, and the Empire strode forth to stop the nasty Egyptians from nationalizing the canal. The result was a humiliating political defeat when Britain's overlord and protector - the USA - refused to support the operation. Britain's empire essentially evaporated after that.

And the other story...

The nastier side of this sad episode is that European politicians will "get it". The lesson they will learn from Brexit is that the perception of too much immigration into Europe is threatening the political fabric of the continent. They will quietly work to restrict immigration into the Union in coming months, either by disallowing entry entirely, or by becoming very pro-Assad (and pro-Putin), essentially handing Syria back to a butcher in return for something like peace that will stem the flow of refugees from that part of the world.
 

Brexit?

The Brits have voted to go it alone! The margin was slight - 51.9% of voters chose to "leave", representing a total vote of some 17.4 million people.  The turnout was only 71.8%, prompting immediate calls for another referendum based on the allegation that a turn-out this low cannot possibly decide something as monumental as the separation of Britain from the EU. These calls will become increasingly shrill as the weeks and months pass, as the true implications of leaving the EU become clearer.

There are two groups to watch now.

The first is the Scots. They just recently voted to stay in the UK, but they clearly supported remaining in the EU. Expect calls for another Scottish referendum to start anew, based on the sensible argument that in voting to stay in the UK, the Scots also voted to stay in the EU, and if the UK will now leave the EU, it should not necessarily take the Scots with it. A Scottish vote to leave the UK to remain in the EU would probably succeed.

The second group of note is the Germans. They are right now deciding among two diametrically opposed options, each with massive implications for the future of the EU.

Option 1 - Do they gracefully accept that the Brits have voted to leave, while extending every olive branch to try to get them the change their minds in a separate, future referendum, including extending the negotiations around separation as long as possible in the hopes of eventually getting a different result?

Option 2 - Do they see a risk to the future of Europe in the British example, and do they decide to make an example of the Brits, forcing a quick and nasty separation, including:

• demanding that European banks engage in high finance only in Europe, thereby partially wrecking the City of London as a centre of work finance; 
• suggesting that British subjects may need visas in the future to travel to and work in Europe; 
• suggesting that British nationals in Europe could be subjected to extra taxation as they would now be foreigners; 
• requiring that the British representatives recuse themselves from all EU business except that related to British separation, as these people would now be in a potentially massive conflict of interest given that they will soon be foreigners (this is actually required by Article 50 of the Treaty of Lisbon, 2009 in respect of the European Council...see below); and, 
• signalling that once the Brits have gone, they will never be allowed back in with the special status that they now enjoy? 

The point would be to show to the Finns and Dutch, and any member of the EU what may lay in store for them should they seek to follow the British lead.

The key is Article 50 of the Lisbon Treaty of 2009, which, once invoked, triggers a two-year separation negotiation, wherein no country can get back into Europe without the unanimous consent of other members.

Will Germany signal that it wants Britain to invoke this Article quickly? The British leadership has already indicated that it wants to go slowly - the obvious reason for this being to see if minds can be changed in a second referendum that will reverse this decision. If the Germans signal that they want to go fast, we will know that they want to move Option 2 - to make an example of the British as a warning to every other country in Europe.

"There is a remedy which ... would in a few years make all Europe ... free and ... happy. It is to re-create the European family, or as much of it as we can, and to provide it with a structure under which it can dwell in peace, in safety and in freedom. We must build a kind of United States of Europe.” W.S. Churchill, 1946

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See you all in Orlando on July 2 - 3, 2016!!!

Random Thoughts

The Markets and a Bad Economy: The stock markets are moving sharply higher on a very negative employment report in the USA as there is an expectation that this will cause the US Fed to hold off raising interest rates this month.  So a bad economy is good for the stock market because it means the free money will keep flowing.

Clinton and Super Delegates: Clinton now has the support of 2,383 delegates, and is being proclaimed the Democratic presidential nominee, as this matches the number of delegates needed to win the nomination.  But 571 of those delegates are "super delegates" who have not been elected by anyone.  If she wins at the convention, it will be a 100% insider victory.  Sanders is right to point our that no one knows how these people will actually vote yet.  If they change their minds, Sanders is the nominee...over to you, FBI.

Trump and Contempt of Court: Trump has asserted that Judge Curiel, who is overseeing a case against his now defunct university, is biased against him because he is "Mexican", even though he was born in Indiana. This would be contempt of court just about anywhere else in the world, but in California, to be contempt of court, these outrageous comments would have to actually be made in court, during an actual court proceeding. Trump must know this...it is open season on the judge who, as a judicial official, cannot respond to this disgusting slander. What would he say about Supreme Court Justice Sotomayor if she dared to side with other justices against a Trumpian executive action should he ever become president?  

Steady as she Grows??

How is the US economy doing??? Last Friday, we got a glut of new information.

Factory Orders and Shipments - this has been negative for 18 months.

Here is the non-manufacturing index - still positive but a definite downward trend for the last year.

Employment - the USA only created 38,000 jobs last month.  There is also an obvious downward trend here.

BUT!!!  The Officials Unemployment Rate is at a fabulous 4.7%!

So as employment growth trails off, the unemployment rate is dropping! This is only possible because the Labour Force Participation Rate has started to drop again, from 62.8% to 62.6% last month. The US Government does not count people who give up looks for work in the official unemployment rate. From an employment perspective, they simply don't exist.

Or do they???

The number of people on food stamps (Supplemental Nutrition Assistance Program) in the USA has dropped from about 47 million in 2002, to about 44 million today.  All things being equal, it should drop below 39 million in 2020. This suggest that people are going back to work...all is well.

However, an expansion of the program in 2009 in response to the Great Recession expired in 2013. This expiration is slowly working its way across the country, on a state by state basis, cutting people off the program for administrative reasons. 

In 2016, for example, 500,000 to a million of these people will simply be cut off the program as time limits for able-bodied persons who have no children go back into effect. As noted, this roll-back has been slowly implemented across the country, and the restoration of these limits are big reasons for the reductions in the last two years. Of the about 3 million people no longer living on food stamps, it is possible that up to half of them did not get work - they were just cut off the program. 

So if people are not in the workforce, and they are not living on food stamps, where are they???  Nowhere good.

GDP Now, which very accurately estimates US GDP on an on-going basis, has GDP growth in the third quarter at 2.5%, which would be very good.  The next major revision is on June 9th...we shall see.