Kwarteng's plan?

[Gilgongo]

I can't see why I'd buy FTSE trackers now.

About 80% of FTSE 100 companies' total sales are made outside of the UK. Most of the stocks in my HYP make less than 10%.

[JohnB]

I know that. My financial spreadsheet allows for that with asset allocation. But I can see companies delisting from the FTSE, so a tracker could lead you astray. Under Tory policies, Britain would not be a good location for a global HQ or financial control

[XFool]

The main problem is that little of this will bear fruit before the next GE, and if the belief is that Labour will win and reverse the tax cuts where is the incentive to invest.

The growing expectation of a Labour win is of itself the greatest headwind to any economic recovery.

So, if it fails, it will be "Labour's fault"?

OR

Remainers are to blame for the run on the pound, claims hedge fund tycoon Crispin Odey

The Telegraph

"The prominent hedge fund manager Crispin Odey has defended his bets against the pound, arguing that the historic rout in the wake of Kwasi Kwarteng’s tax cuts was triggered by Remainers in the City who “hate” the Government...."

Well, it has to be somebody's fault and it obviously cannot be the fault of those responsible for it, can it?

[1nvest]

The main problem is that little of this will bear fruit before the next GE, and if the belief is that Labour will win and reverse the tax cuts where is the incentive to invest.

The growing expectation of a Labour win is of itself the greatest headwind to any economic recovery.

V8

We might be harvesting fruit a lot sooner than you're expecting

Napkin ...

The BoE hold around 800Bn of Gilts, bought at relatively low price/high yields, perhaps 5% yield average price. The BoE is nationalised, owned by the Treasury, returns all of the interest the Treasury pay on those Gilts, back to the Treasury. If the BoE sell all of those Gilts - back to the Treasury, at around 5% yield levels, then they're off the BoE books, owned by the Treasury, who might just tear them up. If they sell when yields are 6%, at a loss, so the Treasury might end up 'in profit', by around 12% (assuming 20 year average maturity) - which on 800Bn = 96Bn of 'free' money for the Treasury. BoE ends up 'broke' - but can legally just print money.

Throw that money at investments rather than wasting it away, and a good way to do that is to give it to the rich.



Timescale wise, and it presently looks like March 2023 with rates hitting 6%, likely the peak, after which rates might start declining back down again, slowing/declining inflation, growth, additional tax revenues ...etc. 1.75 years ahead of the next GE (that must be held no later than January 2025) and enough time for a 'feel good' factor. Starting from high yields, low Pound (perhaps dollar parity) and with declining yields (higher prices) growth could be very strong, especially if the Ukraine war is resolved by then, when flight to dollar (safety) starts to unwind (declining dollar/rising Pound as US investments are pulled and better 'value' sought elsewhere).

[Gilgongo]

What "evidence" is that? At this point there is near universal agreement that Thatcher saved the UK from the economic ruin it had suffered since WW2.

This comment encapsulates perfectly the spirit of Kwarteng's policies: ignore all evidence presented (you did see my link, yes?) that contradicts a sacred, exaggerated myth.

The only thing that really counts in all of politics is whether it delivers better living standards and prosperity for the majority of people. Since Thatcher (and so it will be with Kwarteng) the Gini coefficient has gone up and with it, rates of poverty, income instability and reliance on in-work benefits. Yes, wages have increased, but that has not compensated for declines in other factors that togther comprise standards of living. Access to health care, transport, or housing.

If you disagree with me, I invite you to cite your evidence to the contrary. And no, your memory of the 70's doesn't count. Thatcher's politics were a disaster for the vast majority of people in Britain. She and Reagan are directly responsible for the current UK government, and Trump in the US. Driving division and inequality does that every time.

[Lootman]

What "evidence" is that? At this point there is near universal agreement that Thatcher saved the UK from the economic ruin it had suffered since WW2.

The only thing that really counts in all of politics is whether it delivers better living standards and prosperity for the majority of people.

Stop right there. I disagree with that premise and therefore anything that follows from it is flawed.

If you disagree with me, I invite you to cite your evidence to the contrary. And no, your memory of the 70's doesn't count. Thatcher's politics were a disaster for the vast majority of people in Britain. She and Reagan are directly responsible for the current UK government, and Trump in the US. Driving division and inequality does that every time.

Politics is not ultimately about "evidence". It is about values and preferences.

So yes, if you preferred exchange controls, 98% tax rates, strikes, 3-day weeks and begging letters to the IMF, then the 1970s were great. Again if you are obsessed with "inequality" (i.e. envy) then again you would prefer a time when nobody could achieve success.

But again I dispute that is desirable. I maintain that Thatcher saved the UK from that kind of nihilistic thinking, and is the greatest PM of my adult lifetime.

[XFool]

No, the last time it was tried was by Thatcher in the 1980s, and you won't find many people claiming that was not successful.

I think the word "it" is doing some rather heavy lifting in that sentence.

https://academic.oup.com/cje/article/44/2/319/5550923

"Thatcher claimed that she had improved the economic prospects of the UK and all its citizens through the application of neo-liberal policies; that is (according to her definition of neo-liberalism), free-market policies. The evidence, however, does not support this claim."

Far too many dearly held, ideological myths challenged in there!

[XFool]

What "evidence" is that? At this point there is near universal agreement that Thatcher saved the UK from the economic ruin it had suffered since WW2.

The only thing that really counts in all of politics is whether it delivers better living standards and prosperity for the majority of people.

Stop right there. I disagree with that premise and therefore anything that follows from it is flawed.

No. That you "disagree" with it doesn't mean it is "flawed".

If you disagree with me, I invite you to cite your evidence to the contrary. And no, your memory of the 70's doesn't count. Thatcher's politics were a disaster for the vast majority of people in Britain. She and Reagan are directly responsible for the current UK government, and Trump in the US. Driving division and inequality does that every time.

Politics is not ultimately about "evidence". It is about values and preferences.

Yes! Politics today certainly seems to be all about magical thinking!

So yes, if you preferred exchange controls, 98% tax rates, strikes, 3-day weeks and begging letters to the IMF, then the 1970s were great. Again if you are obsessed with "inequality" (i.e. envy) then again you would prefer a time when nobody could achieve success.

Once again, everything is not about "fifty years ago".

[Nimrod103]

What "evidence" is that? At this point there is near universal agreement that Thatcher saved the UK from the economic ruin it had suffered since WW2.

The only thing that really counts in all of politics is whether it delivers better living standards and prosperity for the majority of people.

Stop right there. I disagree with that premise and therefore anything that follows from it is flawed.

No. That you "disagree" with it doesn't mean it is "flawed".

The premise is flawed because it leaves out the important word 'sustainable'. Better living standards and prosperity for the majority of people are only good if they are sustainable. If half the money invested in pension funds were distributed around the British population, levelling up incomes, the Gini coefficient would go down, and the majority would have great old party. It would not last very long however, as people realized that since their efforts were not rewarded, they might as well not work.

Likewise with windfalls. Much of the income from Empire (back in the days), or from overseas earnings from UK based companies, or from the North Sea were used to create new businesses and income streams. However, a great deal of it was used to keep living standards higher than they really should have been. That value was p****d away, and the prosperity was not sustained.

[Nimrod103]

Interesting contribution from Patrick Minford tonight:

https://www.telegraph.co.uk/news/2022/0 ... ds-idiots/
There is no sterling crisis, except in the minds of idiots
It is important to leave the pound free to find the level that will allow the Government's pro-growth policies to work

Interest rates over 2 per cent and heading to 3 per cent are already tightening monetary conditions sharply. Energy and other commodity prices have peaked and are now falling in the face of a gathering world slowdown, with recession threatening the US, the EU and China. It is likely that interest rates being set by the Fed and the ECB are rising too rapidly for comfort and may have to level off pretty soon.

Part of sterling’s weakness is simply the result of rising interest differentials versus the UK’s. With inflation likely to fall soon it makes little sense for the Bank to speed up its steady tightening of money. The growth rate of UK money supply is now down to about 3 per cent – already quite tight enough. This is why I think long term gilt rates, which mirror expectations of future short rates, will eventually settle around 3 per cent.

There is another element in play: the current account of the UK balance of payments. This has been stubbornly in deficit for some time, at around 4 per cent of GDP. Sterling is the market price that in the long run has to bring this into balance. Currently the deficit is worsening because of the ballooning price of our net energy imports, but this should be temporary as energy prices are set to fall.

[Wuffle]

I can't see past the demographics.
The boomers were 30/35 when Mrs T came to power and life expectancy wasn't all that, so less drag.
I suspect the growth just isn't there to be magically released anymore in an utterly unremarkable modern economy (USA being the remarkable one, for reasons of scale, energy independence, dollar, food production).
Japan and Europe are basically in the same boat, along with others.
Most discussion here is second order.
I am not optimistic.

W.

[MrFoolish]

As an explainer: Lootman is interested in better living standards and prosperity for Lootman, not for the majority of people. I'm sure he'll correct me if I'm wrong (but I'm not).

[servodude]

From the old in it for myself point of view it seems like a great/opportunistic time to live in the UK but be funded from elsewhere
- marginally tempted to move back and retire

I'll see how things are at the next GE.
Kids will be done with school around then

-sd

[servodude]

As an explainer: Lootman is interested in better living standards and prosperity for Lootman, not for the majority of people. I'm sure he'll correct me if I'm wrong (but I'm not).

Don't be stupid
He'll correct you if you're not wrong because correct is one of those irregular verbs in English as she is spoke

[Nimrod103]

Interesting contribution from Patrick Minford tonight:

https://www.telegraph.co.uk/news/2022/0 ... ds-idiots/
[i]There is no sterling crisis, except in the minds of idiots
It is important to leave the pound free to find the level that will allow the Government's pro-growth policies to work

This article appears to have been dropped from the Telegraph main and business pages. It was only there for few hours. Almost seems like they don’t want people to read it.

[Bubblesofearth]

Well, it has to be somebody's fault and it obviously cannot be the fault of those responsible for it, can it?

I find myself once again blaming the banks. If, as others have done, I hark back to the 80's then I remember 3X wages or 2.5X joint wages were limits for mortgage borrowing. And house prices were considered cheap at less than 3X wages and expensive at over 4X wages.

eyeballing some latest figures we have

Average outstanding mortgage is 3.6X average wage
Average property price is 7.5X average wage

Largely because of these numbers household debt/gdp remains far higher than back in the 80's.

I would have laughed at 6% interest rates back then. No wonder they're not laughing now.

The massive expansion of debt remains the biggest millstone for the economy. And we all know where that debt has come from and who allowed it.

BoE

[Leothebear]

What would the wonderful Mrs T do today?

There's nothing left to privatise - all been sold off. No mortgage deregulating to make people feel wealthier. No big industries to shut down. No mines to shut (OK maybe one). Genuine question what would she do?

As for this budget, the IMF think it's daft as do the currency market. Of course there are those on here who know better......

[servodude]

Average outstanding mortgage is 3.6X average wage
Average property price is 7.5X average wage

Ok - so why the divergence?
3.6 doesn't seem a huge multiplier for borrowing
So why do things seen unusually expensive

[Nimrod103]

I can't see past the demographics.
The boomers were 30/35 when Mrs T came to power and life expectancy wasn't all that, so less drag.
I suspect the growth just isn't there to be magically released anymore in an utterly unremarkable modern economy (USA being the remarkable one, for reasons of scale, energy independence, dollar, food production).
Japan and Europe are basically in the same boat, along with others.
Most discussion here is second order.
I am not optimistic.

W.

That might be true, except I see the processes of business, business innovation and the effect on the economy as being different now from what it was then.

The most dynamically clever young person I know is high flyer in a growing competitor of Deliveroo. Such food delivery companies would seem to me to be the most useless economic activity imaginable and offer nothing for the future solvency of the UK. Until we get back to making things, we are doomed. And things can be made by people of any age.

[Nimrod103]

Average outstanding mortgage is 3.6X average wage
Average property price is 7.5X average wage

Ok - so why the divergence?
3.6 doesn't seem a huge multiplier for borrowing
So why do things seen unusually expensive

3.6 because I assume that since most mortgages are repayment (unlike former times), a significant amout of the principle has already been repaid.
I have read that many more houses are now owned mortgage free than in previous years, and the current mortgage debt is thus much more narrowly held mainly among the young and middle aged. If there is a repayment nightmare to come, it will affect a much narrower group than formerly.