Effects of the Brexit Upon the American Economy

By: Daniel Steingold | June 24, 2016

The UK’s decision to engage in what has been termed a “Brexit”— leaving the European Union (EU)— has become a pressing economic issue in nations far outside of Europe.

In America, in particular, there are worries that the decision will affect financial markets, as chief of the Federal Reserve Janet Yellen, had previously warned.

Although only half a percent of U.S. trade is with Britain, it is believed that the fallout could be massive. This is particularly the case because other European countries have called for their own exit from the EU, which could demolish the bloc altogether.

While France has been most outspoken about leaving the EU, the Netherlands and Italy have also expressed doubt about their membership.

If the EU collapsed, the global economy would likely feel shockwaves of uncertainty, and a number of treaties and trade deals would demand renegotiation.

However, just with the current uncertainty that the Brexit has stirred up in the financial markets, Americans may be more weary to spend money. This could affect the economy in that less activity equals a weaker economy.

A decrease in consumer spending would be particularly disappointing considering that an increase in consumer spending was one of the few bright spots in the economy in the previous few months.

It is also believed that the Brexit will adversely affect American businesses and investors. A strong dollar, an immediate consequence of the UK’s withdrawal, means that products sold overseas will generate less money.

Investors are impacted by the Brexit in that the Fed is less likely to raise interest rates. Lower interest rates simply mean that investors make less interest on their savings.

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