Imagine a person who always, in every circumstance, makes rational decisions with his money. He saves when he ought to and spends exactly as he should spend, in order to maximize the “utility” of whatever wealth he happens to possess. He defers gratification with ease. When he invests, he has instant and total access to all possible information related to every item in his, including the details of every company’s financials and any impactful world events, even if they haven’t reached the news media yet. If he found a $100 bill on the sidewalk, he would immediately go out and invest it in a steel mill.
Anybody who was surprised that the Federal Reserve Board decided to raise its benchmark interest rate this week probably wasn’t paying attention. The U.S. economy is humming along, the stock market is booming and the unemployment rate has fallen faster than anybody expected. The incoming administration has promised lower taxes and a stimulative $550 billion infrastructure investment. The question on the minds of most observers is: what were they waiting for?
Headlines told us that the U.S. economy added 178,000 jobs in November, dropping the unemployment rate to 4.6%—the lowest level since August 2007, and surely an improvement over the 10% rates of the Great Recession. Those numbers represent great news, and indicate that the country is in strong shape as President-elect Trump takes office.
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.