Tuesday, July 05, 2016

Brexit IV: The rats want to leave the sinking ship.

Standard Life Fund, the investment arm of the British-based multi-national life insurance company, has stopped withdrawals from its real estate investment mutual funds.  All of them hold London real estate, whose value is unknown now that Brexit may eliminate London's role as the world's premier financial services provider. If Standard Life's action is the first of many, there will be a world-wide financial crisis. Let's just hope it won't happen, and if it does, that it won't be as bad as 2008.

Related risks: The pound was always overvalued in terms of purchasing power. Anyone travelling to the UK found out pretty quickly that the UK was expensive: A pound spent in the UK bought about as much as a dollar spent in Canada or the USA, or roughly twice as much as at home. Its high exchange value reflected the financial power of London. The pound was a safe haven currency. If it loses that status, the financial crisis will be very bad. "Investors" will try to unload pounds. But the only people who ever wanted them in the fist place were the people who will be trying to get rid of them. So the Bank of England will have to buy pounds, and that means a serious risk of major sloshing of currencies around the world. When currencies slosh around because nobody wants them, hyperinflation looms on the horizon.

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