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Yes, Brexit is messy, but it's also way overblown

Crisis? What crisis?

Billionaire George Soros, speaking Thursday, a week after Britain voted to leave the European Union, said that "shocking" decision has "unleashed a crisis in the financial markets comparable in severity only to that of 2007-8."

The Bank of England's governor, Mark Carney, meanwhile said it was likely "some monetary policy easing," like a rate cut, would be necessary in response.

George Soros
Joshua Roberts | Bloomberg | Getty Images
George Soros

The public might assume, hearing these dire warnings, that the British stock market had collapsed. That's what should happen, after all, if the country is gripped by a financial crisis.

In fact, just the opposite has happened.

Britain's FTSE 100 stock index has not just recovered from its post-vote low close below 6,000. It has surged to close at nearly 6,600. That's its highest closing value yet of 2016, and within reach of its all-time highs.

What about the currency?

The British pound, as Soros pointed out, "plunged" from a high of $1.50 before the vote — which was presumed by polls, betting shops and the global elite to be a vote to "remain" in the EU — to a multidecade low of about $1.32.

That is the kind of currency sell-off that Japan, whose yen has instead surged in value, is desperate to orchestrate. The "strong" U.S. dollar meanwhile is constantly cited as a headwind for American businesses, as it makes their goods more expensive internationally.

A cheaper British currency could be a crisis if its swift move provoked a broader financial crisis, which it has not, or if it triggered massive inflation. For now, cheaper sterling will hurt some British households and enterprises while being a boon for others.

What about the overall economy?

The Bank of England's Carney is worried the shock of Britain's vote to leave the EU could cause households and businesses to temporarily halt spending, which could stop the economy and even spur a recession.

The Lindsey Group in Washington expects "roughly flat" gross domestic product in Britain "through 2018" as a result of the vote and an attendant halt in investment.

That would explain why Carney is warning of a rate cut in response, instead of a rate hike, as might otherwise be spurred by a falling currency.

For now, though, Britain's stock market is shrugging off recession talk. So too is Paul Singer, head of $27 billion Elliott Management, who on Wednesday said he thinks the vote to leave will be "a short-term pain, long-term very significant gain decision" and called the EU "a failed project."

"Depends on what Westminster does with its power," said The Lindsey Group, "but it is clear that there is enormous upside potential from getting rid of Brussels."

What, then, about the EU?

An oft-repeated line since Britain voted to leave is that this is "not a financial or economic crisis, but a political one." That is typically meant as a warning for investors not to shrug off the vote too quickly, since politics is a messy and unpredictable process.

Clearly, the EU has been put on notice, and Britain will have its own political distractions and turmoil. But Britain, at least, does have its own currency, and its own central bank that can respond immediately to its particular needs as opposed to the needs of many disparate economies.

If anything, more monetary response from central bankers to what is a political crisis could be an overreaction akin to the late 1990s, when Alan Greenspan cut rates after Russia defaulted on its debt, Long-Term Capital Management went under and the stock market swooned.

There didn't turn out to be much economic damage from that market turmoil, so the rate cuts wound up eventually juicing the stock market to all-time highs.

Similarly, of the roughly $3 trillion wiped off the valuation of global stock markets after Britain's vote to leave, $2 trillion has already been recovered as stocks quickly regained their footing.

If "Brexit" really is a political crisis, it should be treated as a political crisis — and not, despite all the market upheaval, a financial or economic one.