Editor's letter

The EU referendum is a sideshow

The referendum on whether to leave the European Union has just been a distraction to the real problem facing investors, says Merryn Somerset Webb.

As I write I don't know what the result of the UK referendum on Europe is. You will have to wait until next week to hear MoneyWeek's views on the actual result (though we'll be giving our immediate take on the results in a podcast on the website on Friday you'll be able to listen to that or download it on the website). However, one thing I can say already is that, however we voted, the actual result will be much the same either way in the short-to-medium term.

If we've voted in, we'll be trying to reform the EU from the inside (not easy at all), and if we have voted out by a small margin, we'll be getting to work on reforming at least our deal with it from the outside (easier, but still not that easy).

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Either way, we'll be demanding change as will the electorates of many other EU countries. And regardless from which side we are fudging around with the EU, all our other problems will still be with us. We will still have a stunner of a public-debt problem (total government debt is knocking around £1.2trn and still rising), fuelled by our unsustainable system of tax credits. We will still have a horrible current-account deficit (seeBernard Connolly's take on this).

Our big companies will still be overcommitted (in terms of dividend promises to shareholders), underinvested (capital expenditure has been falling dramatically) and dependent on the kind of corporate cronyism we all say we disapprove of to keep their shows on the road. Our equity market will still be overpriced and horribly vulnerable given companies' weak profits. And of course we will still be at the mercy of the same grand monetary experiment that has been slowly confusing our economies for the last 20-odd years.

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In this week's cover story we take a break from talking about the EU to look at how we got to where we are now to a point where more than half of all government bonds globally trade on a negative yield: their buyers care more about preserving most of their money than they do about a guarantee that they will lose a little of it. That's just too nuts to last for very long. So Dan Denning looks at what might happen next.

The answer, in a nutshell, is nothing good. "We're at a stage where it's hard to see how we avoid a future monetary crisis. The lower rates go, the more extreme central banks' efforts to avoid or escape deflation will become. The more desperate their policies, the greater the risk that we'll see destructive levels of inflation."

The EU referendum has been important and it will continue to be important: how we deal with its fallout could make a huge difference to our long-term future. However, it is also a symptom of a deeper economic malaise across the West. And as Dan says in our cover story, in the end that makes it something of a sideshow to the main event: the endgame of modern monetary madness.

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