In the wake of Brexit, I thought the charts below would be helpful in understanding the political changes we’re seeing throughout the world. They might seem unrelated, but it’s the same story in most of the developed world and it’s all tied together.
I’ve had quite a few discussions with people following the Brexit vote and everyone seems to be wondering why they voted to leave the EU. Most of the media outlets are saying how terrible the decision was and how bad it will be economically. The first thing to understand is that the ultimate decision had little to do with economics. It was about sovereignty and control. How many Americans would like a system where a small group of politicians in Toronto made laws and regulations that we had to follow (even they don’t live here), while Mexico made our border decisions? As for the economic impact, yes, it will cause things to slow (even more) globally. But the interesting thing is that it will eventually help the UK’s economy as the pound weakens (the countries that remain part of the UK, that is). Despite what politicians claim, every country that exports products and services wants a weaker currency. If the EU wants to drag this out into a nasty divorce then that could offset much of the benefit, but after a couple of years of adjustment Britain will be one of the faster growing economies in the world as they pull demand from everyone else (currency wars are a zero-sum game – Britain will benefit at the expense of everyone else, which then leads to other countries trying to devalue, which leads to…). The biggest thing to keep an eye on is whether other countries in the EU notice, put the pieces together and demand their own vote to leave. I’ve been writing on this blog for a few years now that an eventual breakup of the Eurozone is inevitable and it appears Brexit will be the beginning of it. The rest of Europe will be the loser of Brexit, not the UK. European countries will always trade with each other so they’ll have some form of a trade pact, but the EU as we know it is going to change quite a bit in the years ahead.
Now on to the charts. Let me preface this by saying that I am not making a political statement with this post. I abhor discussing politics but it’s important to understand how and why the world is changing to best position an investment portfolio. The following charts are to paint a picture of understanding why we’re seeing such dramatic changes politically, moving away from the traditional establishment. People don’t necessarily know why things aren’t working, but they know something isn’t right. Incomes for middle and lower-income citizens have not risen in decades while costs continue to climb.
The charts are self explanatory and should help in understanding why Bernie Sanders did so well in the Democratic primaries and why Donald Trump won the Republican nomination.
Distribution of Wealth
Rising Costs
Student Loans now up to $1.35 trillion and college grads unable to get a job, leading to a rise in defaults
After riding the federal subsidized and guaranteed student loan wave to massive increases in tuition, you might say I’m bearish on the financial prospects of Universities…
-Nick