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Dear R. Hunter,

Attached please find our June report by Robert Madsen. He presents a
global view of the consequences of the Brexit vote on June 23, Brexit:
Deflation, Demographics, and Debacle.

Executive Summary

The United Kingdom has opted out of the European Union and will find it
difficult to reconsider that decision. The focus in London will
accordingly now shift to reorganizing discredited political parties,
forming a new government, managing the Scottish problem, and then,
probably, beginning the two-year process of leaving the EU.

Brexit may well be the first step in the unraveling of the Eurozone.
That process will exercise a deflationary effect on the global economy,
making GDP growth, inflation, and wage improvements more difficult to
achieve.

Key Conclusions:

Global GDP growth will decelerate by 30-50 basis in late 2016 and 2017.

The United States and Japan will serve as safe havens. Inflows of
capital will cause JGBs and Treasuries to appreciate, and both the yen
and the dollar will strengthen. The Fed will not hike interest rates in
2016 or 2017, and the BOJ will intervene frequently to fight yen
appreciation.

The UK has legitimized the process of leaving the European Union and
over the next 3-5 years other countries will follow, each precipitating
a new round of international turmoil.

The BOJ, the PBOC, and probably the ECB will all loosen policy to weaken
their currencies—as will, effectively, any additional defectors from the
European Union. Protectionist sentiment and the possibility of currency
wars will both increase.

With all best wishes,

Lyric Hughes Hale

David Hale Global Economics, Inc.

http://davidhaleweb.com
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