Vail Daily column: The Brexit vote could impact local homeowners
As my regular readers know, world events impact local homeowners and home buyers, and the vote in the United Kingdom this week to exit the European Union is a huge event to the world economy. This event, known as the Brexit,is pretty huge news.
For those who have better things to do with their day — such as enjoying our great summer weather outdoors — than follow global politics, here’s the short version. The Europe Economic Union is an agreement amongst European nations to have free trade, open borders and a common currency — the Euro. British citizens voted on Thursday to end their membership in the European Union.
Most economists agree that overall, the European Union has been beneficial to the economies of the member nations, but as every married couple knows, opinions about economic priorities do vary and can be the cause of many divorces and disagreements.
The United Kingdom is the world’s fifth-largest economy, and the largest trading partner with the European Union, as a whole. There is plenty of real concern that the United Kingdom economy will suffer from job losses and stagnation due to increased trade barriers. Few purchases of United Kingdom exports mean less demand for the British Pound, which would make imports more expensive. The potential downward spiral is potentially enormous.
These events will likely ripple across the world, and, as of Friday morning, as I am writing this, the world’s financial markets are reeling. Yesterday the European Central Bank set aside $422 billion in additional cash to release into the European banking system to demonstrate its commitment to stabilizing the liquidity of banks in the event the value of their assets should fall drastically.
But what is concerning to many is the question of what will happen next. The European Union has been showing cracks for years, and in many countries, there has been growing opposition to the control the European Union has over issues that many think should be sovereign decisions left to the individual nations. It really is similar to the parents who hold the purse strings, using economic leverage to make the kids toe the line.
The ironic thing is, unhappy kids who feel they are being economically blackmailed by ignorant parents when they are teenagers are often impressed with how wise their parents have become by the time they are parents themselves and do the same thing to their kids. Many look to those who are disgruntled with the economic policies of the European Union as equal to disgruntled teenagers who don’t realize that, in the long run, you sometimes have to make sacrifices to equate good economic reasoning.
But, be that as it may, the voters have spoken and the negotiations will begin to remove the United Kingdom from the European Union. And that brings great uncertainties to the prospects of innumerable companies and millions of individuals jobs and investment portfolios. And, if history repeats itself — and it usually does — there could be vast flow into the US Bond markets. Indeed, the refrain could well be something along the lines of “God save the queen, but in Uncle Sam we trust.” This could result in continued low mortgage rates for the United States, which is not a bad thing. But the weakness in the global economy could deter economic growth in our country, which is a bad thing.
Adding to the mix could well be investors making side bets on whether we will soon have an Uncle Donald or an Aunt Hillary sitting in the Oval Office directing the policies of Uncle Sam and the impact either might have on American global relations and trade patterns. In addition, vacationing in the Vail Valley takes money, and if people are not feeling confident about their assets or job, that ski trip to Vail next winter could be on the family budget chopping block. Hang onto your hat, we are headed for some interesting times.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.
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