The Precedent to Brexit

Before there was “Brexit” there was another painful economic divorce, when the British citizens of the American colonies decided to “Amexit” the British Empire in the 1770s.  The Economist magazine took statistics from that era, including long-term government bond yields and stock prices, to see what the “Amexit” shock looked like from an economic standpoint in Britain.

It’s usually bad economic news when government bond yields rise dramatically.  It means that demand has gone down or investors are uncertain whether they’ll get paid back, and (in this case) the British government had to pay more to entice people to invest in the British empire during the time when its army was fighting to subdue the pesky rebels overseas.  Similarly, when stock prices go down, it usually means investor confidence is shaken—or, in the case of the accompanying graph, from the year 1770 through the year 1790—apparently shattered.

You can see some of the seminal events noted on the graph, including a downturn following the unrest associated with the Tea Act and the Boston Tea Party, and then a significant downturn in stocks (and upturn in bond rates) after the American rebels commenced what we on this side of the Atlantic call the Revolutionary War.

Perhaps the most interesting thing about the graph is the fact that normalcy was restored roughly the same time the U.S. finally got its government act together and created the Constitution.  Despite the fact that the British had lost a huge amount of territory and a very promising piece of their future economy, bond rates returned to normal, and the stock market settled down to a few points above where they had been when the whole American independence mess started.  In the end, from an investment standpoint, the “Amexit” proved to be a tempest in a teapot.


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