I agree with a lot of your article, I especilly like "There is nothing to celebrate about the return of an ‘orthodoxy’ that has brought us an insane housing market, negative real interest rates, double digit inflation, taxes at a 70 year high, exponential spending on the worst health service in Europe, £2.4 trillion of debt and lower wages than we had in 2008." But the worm has turned if my memory serves me correctly. I seem to remember you advocating lockdowns as the best thing since sliced bread. Apologies if my memory is wrong, but i'm sure I wanted to throw something at the TV listening to you saying how necessary they were? As has been shown, but was know at the time lockdowns were never either necessary nor sensible. And yes the economy would have taken a slight hit as they do in pandemics but not nearly as bad if the government had stuck to normal pandemic planning, ie, not terrify the population and keep everything on an even as footing as possible. That is what happened in the two pandemics in 50/60s. And the economy fell a bit then but recovered, and the Swedish economy has not suffered nearly as much as ours, because they used a standard pandemic playbook and not the Chinese version which was designed to destroy our economy. But with Jeremy Hunt's links to the CCP he'll finish what was started no doubt.
Yes, it’s odd; my recollection of Mr Snowden in 2020 is one of fanatical lockdown support. But who could have possibly guessed there’d be a downside to shutting down the economy and printing hundreds of billions of pounds to protect against a virus which, or so it now appears from John Ionnidis’ latest paper, has virtually no effect on the under 70s? Who could possibly have foretold this freakish economic collapse?
Your recollection is incorrect - go back and listen to his 2020 Last Orders podcasts for Spiked, Chris was against lockdowns from late spring onward and only reluctantly in favour prior to that.
Just search for the Spiked Last Orders podcast on any usual podcast app. However Catherine is quite right that Chris supported the 2020 - 21 winter into spring lockdown, which was a change of tune to his views expressed in mid-2020. I guess we’re all entitled to change our mind when new evidence becomes available but not then to disown our previous opinion !
I’ve re-listened to Chris’s 2020 podcasts and he was reluctantly in supportive of the first 6 weeks of lockdown, to limit the NHS being swamped, but spoke against further lockdowns after that. So your memory is flawed, he was never “advocating lockdowns as the best thing since sliced bread”, entirely the opposite for most of 2020 and thereafter. This article doesn’t contradict any previous position he has taken. Great article Chris, I only wish I could believe you’re exaggerating but I think you’re spot on.
You had me questioning my memory, I thought maybe I'd contracted the same disease as the mask wearers who insisted that health care workers have always worn masks in this country, I call it imagined memory syndrome. Obviously they never did prior to 2020, except for surgeons but they take them off out of surgery so we never spoke with NHS staff wearing masks but people honestly think they did, a made up memory. Chris was pro lockdown in Feb 2021, even after the vax roll out and the declared harms. So yes he is whitewashing the past. https://youtu.be/yuhxxMWI3bE
My apologies, I hadn’t seen that, he’d weirdly changed his tune in that interview and was expounding the ludicrous idea that viral transmission can just keep doubling exponentially (taken to its logical conclusion the entire world population would be infected in a very short period if that were true, you only have to put doubling into a spreadsheet and copy down the column to discover how quickly that works). The doubling slows quickly because the virus rapidly runs out of susceptible people. The Indian experience with Delta shows us that, they had a desperate situation with overwhelmed health services and lack of oxygen which abated after only about 3-4 weeks. So yes I agree this article is a change of tune, though I agree with the economic commentary just not with his position in the Talk Radio debate, I’m with Toby on that one and I always was.
So he has said: hear what the professionals are saying when it comes to our economy. Hear what the doctors are saying when it comes to health. It isn't a contradiction, because there was a health emergency You listen to people who actually know. Get over yourself.
That would be fine if even one of those so call professionals got anything right. But they have buggered up just about everything. Did lockdowns work for either people's health or the economy? The answers a big fat NO. The evidence is in and it's unequivocal, those experts effed up big time. And if he'd admitted his error instead of just whitewashing it then I wouldn't have called him on it. So no I don't think I'll get over myself, I'll call bullshit when I see it.
The problem is that Brits are not Swedes, don't behave like Swedes and there are 55 million more of us in an island not much bigger. There would have been (media promoted) panic and civil unrest. The first lockdown gave the world a breathing space - no-one knew where Covid was going.
Don't wish to be rude but that's abject nonsense. There are more of us but the cities are similar sizes and demographics and the behaviour is the same. I've heard that absolute tosh that we'd behave differently, why on earth do you think that? Do you hate or think so little of the British? If you do it's programming, that's what you've been told to believe with no evidence. And yes programming is powerful stuff and can result in civil unrest but the government told the papers what to print and spent 💯 of millions of pounds doing it, that message could and should have been to calm tf down. And then there wouldn't have been unrest the same as there wasn't in Sweden. The Swedish are not Zen monks they're the same as us. And we didn't need breathing space because anyone who had actually been following the information knew that this was a disease of the very elderly (average Covid death was and still is 82yrs) and sick right from the start. I knew and I'm an average person but I read all the info I could. The government had more access to information than me so why didn't they know? But actually they did, as can be seen from the very first press conferences. Then they did a 180 reversal without reason. Lockdowns were NEVER justified they were pure panic fro an ignorant and stupid media & government (both sides) The original pandemic plan was jettisoned for no reason apart from cowardice, instead of facing down panic they inflamed it.
100 per cent. As a small business owner I had a choice.. Shut down immediately or find novel ways to stay open. We chose the latter despite huge opposition from many people who lambasted me for putting 'people's lives at risk'. Fortunately I am a stroppy old bird and sufficiently well feathered to withstand the odd barb or two.
I do think so little of the British, actually. Those pricks demanded more free money. They ate the eat out to help out free lunch and then complained it spread too much Covid. They are the problem, not the politicians.
It was clear the COVID scam was on when the "within 28 days of a positive test" was needed to keep the death figures high enough to justify the draconian lockdown measures and keep the population in check.
D=Strange how the Moderna CEO is now publicly stating that COVID is no more than seasonal flu.........
Fair point - but it was world wide, many countries did the same. It's not just a British phenomenon. It's a blinkered mentality that a lot of the poulation is guilty of - close your eyes and block your ears and the boggy man will go away kind of thinking. And it's a modern problem, older generations had to plan ahead or they would starve, so forward thinking was normal. I think the ease of our lives is part of the downfall now.
A concise summary of what has been going on for the last decade or so reaching its inevitable conclusion. To a non-economist most of it is just common sense and obvious but apparently not to decision makers.
It still staggers me that in our whole history to 2008 we had built up a debt of about £600bn but in the space of just 14 years since we have more than trebled that.
I have been puzzled by the way that Liz Truss has been blamed for everything that seems to be going wrong with the economy at moment. She hasn't been in charge long enough to break anything. Promoting economic growth looks like the least painful way out of the debt crisis, so she should get some credit for actually trying.
An interesting article and pretty informative. But what it demonstrates - and nobody can deny this since they have been there for 12 years and "events, dear boy, events" happen to any government - is that the Conservative Party has managed to destroy the economy. On that basis, many people will see little reason for their continued existence, never mind as the ruling party. The joke with inflation is that ferry tickets, for example, appear to comprise a part of it. Whereas enormous rises in mortgages do not. It appears inflation therefore is divorced from the cost of living. On that basis alone, I am glad I no longer live in Britain.
The Conservatives were certainly in charge when the low interest rate/QE orthodoxy took hold, but it has been the same in the EU, USA and other countries, and there is no indication that Labour would have done anything different. Moreover, the govt doesn't have control of interest rates and the money supply. Perhaps it would have made the same decisions if it did have control of those things, but the orthodoxy is primarily one of central bankers.
Everyone's spending pattern is different so we all have our own, personal inflation rate. Clearly that's not much help for policymaking. I was surprised to read that 68% of UK households do not have a mortgage. Many of those that do will have a fix, so to include variable mortgage rates in the standard inflation measure would not be very representative. On the other hand, we all buy a ferry ticket every week, don't we?
I agree with a lot of this Chris. I remember late 2021 hearing how well the economy was on various round table calls and thinking ‘how?’ I’m not an economist but savvy enough to know that all that borrowing and public spending had a price. How could it not? A lot of what’s happened (excluding the Ukraine war) has come as no surprise to me. My main frustration is that the Business Minister did nothing to deal with the energy prices and negotiate a much stronger cap. The profits are obscene.
"Firstly, printing too much money creates inflation. Duh."
Good job that didn't happen then isn't it. The Bank of England is prevented from printing money by the fiduciary note limit. There is a cap on the amount it can issue. Moreover money comes from the Issue Department of the Bank, not the Banking Department.
So the Bank can't be printing money. Anybody who suggests it is is hard of accounting and doesn't actually understand what is happening.
What the Bank is doing is swapping liabilities of the National Loans Fund for liabilities of the Banking Department. Since the Bank of England is effectively owned by the National Loans Fund, that's just a liability push down in the ownership stack. The sort of operation done within groups of companies thousands of times a day.
Bank Reserves can only be held by banks. They can't be held by the general public. It's an asset swap - a fixed rate liability for a floating rate liability. In other words a change in interest rate that reduces the amount of public money banks receive from the state as interest. Supporting higher interest rate settings supports a higher state pension for banks.
Moreover setting interest rates is an *artificial intervention into the market for money*. It's central planning and shouldn't happen. Liquidity is naturally limited by the amount of physical collateral people can offer up to banks, and liquidity should float to that amount with the price set by the risk managers in banks alone. The whole point of a dynamic currency is so that people can spend their assets to make more assets. Restricting that reduces business investment and lowers our productivity.
If asset prices go up, then that is a price signal to produce more of those assets - houses and businesses. During the pandemic when used cars started to act like the housing market we didn't say we needed to slam interest rates up. We said we needed to get back to producing more cars.
And as for zombie companies. If wage rises causes prices to go up because companies have pricing power, then why won't interest rate rises cause prices to go up for the same pricing power reasons? Both are just the cost of doing business.
If the companies don't have pricing power, then wage rises will do the same thing to zombie companies. And we can ensure wage rises by restricting immigration to the net 30,000 or so we had before New Labour.
There isn't any money printing as such as it's all digital these days, but QE effectively creates new money and pumps it into the economy. Too much of this will create inflation. Indeed, the BoE did a bout of QE in 2011-12 specifically to increase inflation to meet its target (a target it is keening on meeting when inflation is below 2% than when it is above it).
That caricature isn’t what is actually happening though. QE creates bank reserves which can only be held by banks. It is a liability swap, adds no additional assets to the private sector and causes no inflation at all. In fact it reduces the interest income the private sector gets and is initially deflationary.
It is nothing more than a way of changing interest rates further up the yield curve in the vain hope that will get people to borrow more money. Which is what the Bank was relying on. It didn’t work particularly well or likely at all.
We could QE the entire Gilt stock and it would have precious little effect on inflation.
You may want to read my papers “The Self financing state: An institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom“ and “An accounting model of the U.K. exchequer” to gain a correct understanding of how the U.K. monetary system works.
The Conservatives broke the UK economy since 2010 accumulating a staggering debt. Truss/Kwarteng delivered in the mini-budget a version of the Laffer curve that caused the financial markets to exact a "premium" on UK gilts, that has raised the rates paid on debt/credit not only by the UK Government but also by businesses and households, a staggering own goal.
No Government learns anything, borrowing in the hope that “something” will turn up has been standard practice Worldwide since the 1920’s, all because this is ultimately a Ponzi scheme where ultimately no-one wins just those who gained at the very beginning, then conveniently died. No Government dare balance the books, imagine running your household budget on the principle that despite the fact your income is £45,000, you have decided that expenditure of £50,000 is prudent, the shortfall can be made up from long term borrowing - say over 20years, but this shortfall is not limited to just this year, but next year and each year thereafter, although you are paying little bits of these annual “loans” the amounts are growing - now let’s throw into the pot a sudden desire to increase the small deficit, because after all it is small and add an extra £5000, heck, it’s nothing a month over 20yrs, but at the same time the original income has not increased and the deficit has grown to £10,000 per year, but as you are unable to pay back sufficient your total debt is increasing towards double your income - something breaks - in the case of the individual, they end up selling everything to clear the debt, in the case of the Government they just borrow more at higher rates thus increasing the debt problem. A honest, if such a entity exists, Government would cost every piece of expenditure and calculate what tax burden the Nation would need to bear in order to pay for it - if the figures ended up too high, they would need to review the expenditure downwards and make sufficient cuts to impose a tax burden acceptable to the Nation - good luck finding any politico brave enough to do that. Sample cost savings to reduce the tax burden would be a reduction in NHS spending - funded by looking at how much the private sector individual patient costs per day and extrapolating forward to NHS figures - with a allowance of +50% for A&E patients - this would give us an annual cost truly representative of what it really costs without the huge waste inherent in a broken state system, reductions would immediately impact on line and upper management while leaving front end staff with sufficient funding to retain, train, replace and improve services - start with the largest tax burden problem then move onto the next - benefits and apply the same logic - within a short time, Government spending would be cut by elimination of un-natural waste of time operations, offices, personnel and programs designed to just waste money. Tax rates need not be as high as they are, a reduction to just 15% is possible, but this would mean extending tax to cover every purchase inc: food - the benefit is simple, tax would be calculated on individuals salary, corporation tax on total turnover - simple quick and efficient, with the added bonus of raising more at a lower cost.
Herein lies the fundamental issue with democracy which is that it incentivises politicians to lie to a largely ignorant and docile electorate. These lies need to get bigger with each election, and social media only serves to amplify the dumb public's insatiable thirst to be given ever more ridiculous promises (aka outright lies). We forget that true democracy is relatively rare around the world, and a recent experiment to boot (100 years ago you could count them on one hand), and I suspect it will be short-lived.
Agree with Catherine and many of the comments under her post,
we started Q1 2020 with all plans in place for our business, hard work had been undertaken and effort/sacrifice over the planning/team building over a 3 year period, the whole idea of shutting down the world for 3 weeks seemed at the time, so majorly wrong!
This man was regularly saying things about the 'r' number/spread of coronavirus/quoting the health reports, it made me sick to my core
, he had an income every month, the 9 of us involved with our business had placed all our effects/funds in the business, we wished to launch that Quarter.... we run out of money and the will-to-live in the middle of the 2nd lockdown
Now its still a case of picking up the pieces ,
many of the team are deeply depressed and/or off-work entirely, it has smashed to pieces every aspect of our lives, personal and professional
"She has unwittingly shown that austerity was not a ‘political choice’. "
There has been far too little discussion of this important point. The arguments of the left that there was an alternative to austerity in 2010 have been completely invalidated.
I agree with this completely, but the implication must be that the UK is only the first to blow up as it is far from the only economy to have created lots of money and driven interest rates to zero. Are we prepared to predict similar turmoil for the Eurozone and the US, or do they have better defences?
Yes, there were big problems in the UK economy before Liz Truss became Prime Minister. But Truss has not acted as though these problems exist, she has acted as though the British economy is an experimental playground where she is able to do whatever she likes, and not a real thing which is directly tied to the livelihoods of British citizens. I'm not sure if there's ever a good time for a radical Trussonomic agenda, but if there is it definitely isn't now. We've had a pandemic, a cost-of-living crisis, war in Europe and the Queen died. People are not hungry for radicalism right now, they want reassurance and a safe pair of hands. No wonder the markets reacted so negatively to a nakedly unserious "plan" to turn things around. And that unseriousness *did* undeniably spook markets. The first requirement for growth is confidence, and in one ill-judged fiscal event Truss completely nuked investor confidence.
I feel like this is the part missing from the analysis. I agree mostly on the gravity of economic situation and its diagnosis (though I suspect we would diverge when it came to suggesting what ought to have been done about it); but that is all the more reason to demand higher standards of the incoming Prime Minister tasked with clawing a way out of this mess. Never has leadership been so necessary and yet also so lacking.
I agree with a lot of your article, I especilly like "There is nothing to celebrate about the return of an ‘orthodoxy’ that has brought us an insane housing market, negative real interest rates, double digit inflation, taxes at a 70 year high, exponential spending on the worst health service in Europe, £2.4 trillion of debt and lower wages than we had in 2008." But the worm has turned if my memory serves me correctly. I seem to remember you advocating lockdowns as the best thing since sliced bread. Apologies if my memory is wrong, but i'm sure I wanted to throw something at the TV listening to you saying how necessary they were? As has been shown, but was know at the time lockdowns were never either necessary nor sensible. And yes the economy would have taken a slight hit as they do in pandemics but not nearly as bad if the government had stuck to normal pandemic planning, ie, not terrify the population and keep everything on an even as footing as possible. That is what happened in the two pandemics in 50/60s. And the economy fell a bit then but recovered, and the Swedish economy has not suffered nearly as much as ours, because they used a standard pandemic playbook and not the Chinese version which was designed to destroy our economy. But with Jeremy Hunt's links to the CCP he'll finish what was started no doubt.
Yes, it’s odd; my recollection of Mr Snowden in 2020 is one of fanatical lockdown support. But who could have possibly guessed there’d be a downside to shutting down the economy and printing hundreds of billions of pounds to protect against a virus which, or so it now appears from John Ionnidis’ latest paper, has virtually no effect on the under 70s? Who could possibly have foretold this freakish economic collapse?
Your recollection is incorrect - go back and listen to his 2020 Last Orders podcasts for Spiked, Chris was against lockdowns from late spring onward and only reluctantly in favour prior to that.
Just search for the Spiked Last Orders podcast on any usual podcast app. However Catherine is quite right that Chris supported the 2020 - 21 winter into spring lockdown, which was a change of tune to his views expressed in mid-2020. I guess we’re all entitled to change our mind when new evidence becomes available but not then to disown our previous opinion !
Do you have a link?
Well said Catherine - 100%!
I’ve re-listened to Chris’s 2020 podcasts and he was reluctantly in supportive of the first 6 weeks of lockdown, to limit the NHS being swamped, but spoke against further lockdowns after that. So your memory is flawed, he was never “advocating lockdowns as the best thing since sliced bread”, entirely the opposite for most of 2020 and thereafter. This article doesn’t contradict any previous position he has taken. Great article Chris, I only wish I could believe you’re exaggerating but I think you’re spot on.
You had me questioning my memory, I thought maybe I'd contracted the same disease as the mask wearers who insisted that health care workers have always worn masks in this country, I call it imagined memory syndrome. Obviously they never did prior to 2020, except for surgeons but they take them off out of surgery so we never spoke with NHS staff wearing masks but people honestly think they did, a made up memory. Chris was pro lockdown in Feb 2021, even after the vax roll out and the declared harms. So yes he is whitewashing the past. https://youtu.be/yuhxxMWI3bE
My apologies, I hadn’t seen that, he’d weirdly changed his tune in that interview and was expounding the ludicrous idea that viral transmission can just keep doubling exponentially (taken to its logical conclusion the entire world population would be infected in a very short period if that were true, you only have to put doubling into a spreadsheet and copy down the column to discover how quickly that works). The doubling slows quickly because the virus rapidly runs out of susceptible people. The Indian experience with Delta shows us that, they had a desperate situation with overwhelmed health services and lack of oxygen which abated after only about 3-4 weeks. So yes I agree this article is a change of tune, though I agree with the economic commentary just not with his position in the Talk Radio debate, I’m with Toby on that one and I always was.
So he has said: hear what the professionals are saying when it comes to our economy. Hear what the doctors are saying when it comes to health. It isn't a contradiction, because there was a health emergency You listen to people who actually know. Get over yourself.
That would be fine if even one of those so call professionals got anything right. But they have buggered up just about everything. Did lockdowns work for either people's health or the economy? The answers a big fat NO. The evidence is in and it's unequivocal, those experts effed up big time. And if he'd admitted his error instead of just whitewashing it then I wouldn't have called him on it. So no I don't think I'll get over myself, I'll call bullshit when I see it.
The problem is that Brits are not Swedes, don't behave like Swedes and there are 55 million more of us in an island not much bigger. There would have been (media promoted) panic and civil unrest. The first lockdown gave the world a breathing space - no-one knew where Covid was going.
Don't wish to be rude but that's abject nonsense. There are more of us but the cities are similar sizes and demographics and the behaviour is the same. I've heard that absolute tosh that we'd behave differently, why on earth do you think that? Do you hate or think so little of the British? If you do it's programming, that's what you've been told to believe with no evidence. And yes programming is powerful stuff and can result in civil unrest but the government told the papers what to print and spent 💯 of millions of pounds doing it, that message could and should have been to calm tf down. And then there wouldn't have been unrest the same as there wasn't in Sweden. The Swedish are not Zen monks they're the same as us. And we didn't need breathing space because anyone who had actually been following the information knew that this was a disease of the very elderly (average Covid death was and still is 82yrs) and sick right from the start. I knew and I'm an average person but I read all the info I could. The government had more access to information than me so why didn't they know? But actually they did, as can be seen from the very first press conferences. Then they did a 180 reversal without reason. Lockdowns were NEVER justified they were pure panic fro an ignorant and stupid media & government (both sides) The original pandemic plan was jettisoned for no reason apart from cowardice, instead of facing down panic they inflamed it.
100 per cent. As a small business owner I had a choice.. Shut down immediately or find novel ways to stay open. We chose the latter despite huge opposition from many people who lambasted me for putting 'people's lives at risk'. Fortunately I am a stroppy old bird and sufficiently well feathered to withstand the odd barb or two.
I do think so little of the British, actually. Those pricks demanded more free money. They ate the eat out to help out free lunch and then complained it spread too much Covid. They are the problem, not the politicians.
It was clear the COVID scam was on when the "within 28 days of a positive test" was needed to keep the death figures high enough to justify the draconian lockdown measures and keep the population in check.
D=Strange how the Moderna CEO is now publicly stating that COVID is no more than seasonal flu.........
The strangest thing of all is how the media barely write about it any more............And I should know......
Fair point - but it was world wide, many countries did the same. It's not just a British phenomenon. It's a blinkered mentality that a lot of the poulation is guilty of - close your eyes and block your ears and the boggy man will go away kind of thinking. And it's a modern problem, older generations had to plan ahead or they would starve, so forward thinking was normal. I think the ease of our lives is part of the downfall now.
Abject nonsense - love it!
Nail on the head.
Brilliant.
A concise summary of what has been going on for the last decade or so reaching its inevitable conclusion. To a non-economist most of it is just common sense and obvious but apparently not to decision makers.
It still staggers me that in our whole history to 2008 we had built up a debt of about £600bn but in the space of just 14 years since we have more than trebled that.
Great stuff!
I have been puzzled by the way that Liz Truss has been blamed for everything that seems to be going wrong with the economy at moment. She hasn't been in charge long enough to break anything. Promoting economic growth looks like the least painful way out of the debt crisis, so she should get some credit for actually trying.
An interesting article and pretty informative. But what it demonstrates - and nobody can deny this since they have been there for 12 years and "events, dear boy, events" happen to any government - is that the Conservative Party has managed to destroy the economy. On that basis, many people will see little reason for their continued existence, never mind as the ruling party. The joke with inflation is that ferry tickets, for example, appear to comprise a part of it. Whereas enormous rises in mortgages do not. It appears inflation therefore is divorced from the cost of living. On that basis alone, I am glad I no longer live in Britain.
The Conservatives were certainly in charge when the low interest rate/QE orthodoxy took hold, but it has been the same in the EU, USA and other countries, and there is no indication that Labour would have done anything different. Moreover, the govt doesn't have control of interest rates and the money supply. Perhaps it would have made the same decisions if it did have control of those things, but the orthodoxy is primarily one of central bankers.
Everyone's spending pattern is different so we all have our own, personal inflation rate. Clearly that's not much help for policymaking. I was surprised to read that 68% of UK households do not have a mortgage. Many of those that do will have a fix, so to include variable mortgage rates in the standard inflation measure would not be very representative. On the other hand, we all buy a ferry ticket every week, don't we?
I agree with a lot of this Chris. I remember late 2021 hearing how well the economy was on various round table calls and thinking ‘how?’ I’m not an economist but savvy enough to know that all that borrowing and public spending had a price. How could it not? A lot of what’s happened (excluding the Ukraine war) has come as no surprise to me. My main frustration is that the Business Minister did nothing to deal with the energy prices and negotiate a much stronger cap. The profits are obscene.
"Firstly, printing too much money creates inflation. Duh."
Good job that didn't happen then isn't it. The Bank of England is prevented from printing money by the fiduciary note limit. There is a cap on the amount it can issue. Moreover money comes from the Issue Department of the Bank, not the Banking Department.
So the Bank can't be printing money. Anybody who suggests it is is hard of accounting and doesn't actually understand what is happening.
What the Bank is doing is swapping liabilities of the National Loans Fund for liabilities of the Banking Department. Since the Bank of England is effectively owned by the National Loans Fund, that's just a liability push down in the ownership stack. The sort of operation done within groups of companies thousands of times a day.
Bank Reserves can only be held by banks. They can't be held by the general public. It's an asset swap - a fixed rate liability for a floating rate liability. In other words a change in interest rate that reduces the amount of public money banks receive from the state as interest. Supporting higher interest rate settings supports a higher state pension for banks.
Moreover setting interest rates is an *artificial intervention into the market for money*. It's central planning and shouldn't happen. Liquidity is naturally limited by the amount of physical collateral people can offer up to banks, and liquidity should float to that amount with the price set by the risk managers in banks alone. The whole point of a dynamic currency is so that people can spend their assets to make more assets. Restricting that reduces business investment and lowers our productivity.
If asset prices go up, then that is a price signal to produce more of those assets - houses and businesses. During the pandemic when used cars started to act like the housing market we didn't say we needed to slam interest rates up. We said we needed to get back to producing more cars.
And as for zombie companies. If wage rises causes prices to go up because companies have pricing power, then why won't interest rate rises cause prices to go up for the same pricing power reasons? Both are just the cost of doing business.
If the companies don't have pricing power, then wage rises will do the same thing to zombie companies. And we can ensure wage rises by restricting immigration to the net 30,000 or so we had before New Labour.
Cheap labour is the problem, not cheap money.
There isn't any money printing as such as it's all digital these days, but QE effectively creates new money and pumps it into the economy. Too much of this will create inflation. Indeed, the BoE did a bout of QE in 2011-12 specifically to increase inflation to meet its target (a target it is keening on meeting when inflation is below 2% than when it is above it).
That caricature isn’t what is actually happening though. QE creates bank reserves which can only be held by banks. It is a liability swap, adds no additional assets to the private sector and causes no inflation at all. In fact it reduces the interest income the private sector gets and is initially deflationary.
It is nothing more than a way of changing interest rates further up the yield curve in the vain hope that will get people to borrow more money. Which is what the Bank was relying on. It didn’t work particularly well or likely at all.
We could QE the entire Gilt stock and it would have precious little effect on inflation.
You may want to read my papers “The Self financing state: An institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom“ and “An accounting model of the U.K. exchequer” to gain a correct understanding of how the U.K. monetary system works.
The Conservatives broke the UK economy since 2010 accumulating a staggering debt. Truss/Kwarteng delivered in the mini-budget a version of the Laffer curve that caused the financial markets to exact a "premium" on UK gilts, that has raised the rates paid on debt/credit not only by the UK Government but also by businesses and households, a staggering own goal.
Yes, funny isn't it. Osborne is remembered for imposing "austerity" when, in fact, he was borrowing and spending like crazy.
Did you think low interest rates were forever?
They are still low.
Can someone explain why prosperity for rich people driven by economic growth (selling poor people shit they don’t need) is such a good thing?
No Government learns anything, borrowing in the hope that “something” will turn up has been standard practice Worldwide since the 1920’s, all because this is ultimately a Ponzi scheme where ultimately no-one wins just those who gained at the very beginning, then conveniently died. No Government dare balance the books, imagine running your household budget on the principle that despite the fact your income is £45,000, you have decided that expenditure of £50,000 is prudent, the shortfall can be made up from long term borrowing - say over 20years, but this shortfall is not limited to just this year, but next year and each year thereafter, although you are paying little bits of these annual “loans” the amounts are growing - now let’s throw into the pot a sudden desire to increase the small deficit, because after all it is small and add an extra £5000, heck, it’s nothing a month over 20yrs, but at the same time the original income has not increased and the deficit has grown to £10,000 per year, but as you are unable to pay back sufficient your total debt is increasing towards double your income - something breaks - in the case of the individual, they end up selling everything to clear the debt, in the case of the Government they just borrow more at higher rates thus increasing the debt problem. A honest, if such a entity exists, Government would cost every piece of expenditure and calculate what tax burden the Nation would need to bear in order to pay for it - if the figures ended up too high, they would need to review the expenditure downwards and make sufficient cuts to impose a tax burden acceptable to the Nation - good luck finding any politico brave enough to do that. Sample cost savings to reduce the tax burden would be a reduction in NHS spending - funded by looking at how much the private sector individual patient costs per day and extrapolating forward to NHS figures - with a allowance of +50% for A&E patients - this would give us an annual cost truly representative of what it really costs without the huge waste inherent in a broken state system, reductions would immediately impact on line and upper management while leaving front end staff with sufficient funding to retain, train, replace and improve services - start with the largest tax burden problem then move onto the next - benefits and apply the same logic - within a short time, Government spending would be cut by elimination of un-natural waste of time operations, offices, personnel and programs designed to just waste money. Tax rates need not be as high as they are, a reduction to just 15% is possible, but this would mean extending tax to cover every purchase inc: food - the benefit is simple, tax would be calculated on individuals salary, corporation tax on total turnover - simple quick and efficient, with the added bonus of raising more at a lower cost.
"anti-growth coalition of Tory MPs"
It's a shame this is here as it undermines the article. It's okay to be against fracking and still not be anti growth.
Herein lies the fundamental issue with democracy which is that it incentivises politicians to lie to a largely ignorant and docile electorate. These lies need to get bigger with each election, and social media only serves to amplify the dumb public's insatiable thirst to be given ever more ridiculous promises (aka outright lies). We forget that true democracy is relatively rare around the world, and a recent experiment to boot (100 years ago you could count them on one hand), and I suspect it will be short-lived.
Agree with Catherine and many of the comments under her post,
we started Q1 2020 with all plans in place for our business, hard work had been undertaken and effort/sacrifice over the planning/team building over a 3 year period, the whole idea of shutting down the world for 3 weeks seemed at the time, so majorly wrong!
This man was regularly saying things about the 'r' number/spread of coronavirus/quoting the health reports, it made me sick to my core
, he had an income every month, the 9 of us involved with our business had placed all our effects/funds in the business, we wished to launch that Quarter.... we run out of money and the will-to-live in the middle of the 2nd lockdown
Now its still a case of picking up the pieces ,
many of the team are deeply depressed and/or off-work entirely, it has smashed to pieces every aspect of our lives, personal and professional
"She has unwittingly shown that austerity was not a ‘political choice’. "
There has been far too little discussion of this important point. The arguments of the left that there was an alternative to austerity in 2010 have been completely invalidated.
I agree with this completely, but the implication must be that the UK is only the first to blow up as it is far from the only economy to have created lots of money and driven interest rates to zero. Are we prepared to predict similar turmoil for the Eurozone and the US, or do they have better defences?
Don't know to feel about this.
Yes, there were big problems in the UK economy before Liz Truss became Prime Minister. But Truss has not acted as though these problems exist, she has acted as though the British economy is an experimental playground where she is able to do whatever she likes, and not a real thing which is directly tied to the livelihoods of British citizens. I'm not sure if there's ever a good time for a radical Trussonomic agenda, but if there is it definitely isn't now. We've had a pandemic, a cost-of-living crisis, war in Europe and the Queen died. People are not hungry for radicalism right now, they want reassurance and a safe pair of hands. No wonder the markets reacted so negatively to a nakedly unserious "plan" to turn things around. And that unseriousness *did* undeniably spook markets. The first requirement for growth is confidence, and in one ill-judged fiscal event Truss completely nuked investor confidence.
I feel like this is the part missing from the analysis. I agree mostly on the gravity of economic situation and its diagnosis (though I suspect we would diverge when it came to suggesting what ought to have been done about it); but that is all the more reason to demand higher standards of the incoming Prime Minister tasked with clawing a way out of this mess. Never has leadership been so necessary and yet also so lacking.
Good article. I can't be bothered to write it all over again because I've already commented.