Brexit Vote: A Bigger Deal Than the US Presidential Election

The vote still hasn’t happened, yet markets reeling:

German DAX down about 10% in less than two weeks (although it has since recovered a bit)
S&P 500 down 3% from its high made 2 weeks ago
Britain down 9% (it has also recovered a bit)

Did anyone even think of the consequences of trying to recreate Grexit, but with a much bigger economy?

In anticipation of a binary outcome (exit or stay), right now the implied volatility on the weekly options of the S&P 500 is exceedingly high, even higher than before presidential elections. So in other words, according to option implied volatility, the outcome of this vote is deemed to be more important for the US economy than whether Clinton or Trump becomes president, despite all the campaigning, feuding, and media hype.

If this does not scare you a little, it should. Although Britain has many geniuses, many are none too bright. (On message boards you can always tell who is British, because of all the glaring typos and grammatical errors, as well as spelling color as colour, colon as bowel, and mom as mum. Many people mistakenly assume America’s education system is bad, or that Americans are uneducated and unrefined, but Britain, by in large, is worse. Britain’s standard of living, despite the outward opulence of the royal family, is actually quite poor.)

The global economy is already weak and Brexit may make things worse. America will be insulated to a large extent, but it will hurt Germany. Some frame it as an issue about immigration, but Britain doesn’t have to leave in order to fix its immigration and laborer problem. As a sovereign entity, they can defy Merkel if they so choose, without leaving. Merkel needs them to stay, so Britain has a lot of leverage come negotiations.

This is why absolute monarchies or oligarchies are best government, because ordinary people cannot have such a disproportionate impact on outcomes. America’s democratic system creates the illusion that people can make a difference and have choices, but the most important votes, rightfully, are left to congress. The tripartite system creates redundancies and safeguards, ensuring that no one individual or the masses can have too much of an impact. No referendums. Imagine if Americans were offered an option to choose lower taxes, more welfare spending, or budget surpluses: many would vote for all three, not knowing that tradeoffs between spending and surpluses are unavoidable.

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