Governments Malfunction and the Markets Place Their Bets
Corporations active in Britain have been hedging against Brexit for months, of course, by shifting parts of their operations to places deemed more stable.
The latest to announce a move is Dyson, the appliances company privately held by James Dyson, an outspoken Brexit advocate. The company said this week that would move its headquarters to Singapore. In an article in The Telegraph, Mr. Dyson assured his countrymen that he was making this move because of Asia’s expanding place in the company’s global operations, not because of Brexit.
Whatever his reasons, most British residents can’t hedge against Brexit by relocating part of their households to another country. Instead, if the probability of a wrenching separation from Europe appeared to be rising, prudent people might take the steps that anyone does when a possible disaster looms: hoarding necessities like food, water and medicine; stocking up on cash and fuel; retreating to safer ground, if any can be found.
Such measures may be individual lifesavers, but when many people take them at once, they may make a crisis more severe, especially when confidence in government is ebbing.
Global markets shudder when panics start, which is why bets on potential crises are risky. And if this is true for Brexit, what can we say about the lengthening government shutdown in the United States, already the longest in history?
Financial markets have largely taken the shutdown in stride. Despite the pain inflicted on government workers and those who depend on them, economists have generally concluded that the effects will be transitory, if the shutdown ends soon.
But it has already lingered for an improbably long time, and political tensions in the United States remain high, amid a series of simmering crises that could easily unnerve markets. These include the trade conflict between the United States and China and America’s fraying relations with allies like Australia, Canada, France, Germany, Japan and Mexico.
Market calculations shift swiftly, and hedging against losses on multiple fronts could quickly become the order of the day.