[Johnny Brown]

The widely-held expectation by market commentators is this will eventually devalue the dollar, pound and Euro beyond recovery.

In favour of what? Renminbi? Or bitcoin, sounds a lot like the youtoob crypto-loon 'great reset' theory? Which despite some enthusiasm for crypto I have no truck with. It ignores that currency is ultimately a human tool, not some force of nature. North America and Europe collectively doing an Argentina is not realistic.

[petejh]

What happened yesterday was the first public hint that the markets cannot take QT. The reasons are many but one reason is that the side effects would destroy the housing market. We'll see. The underlying reason housing markets would be destroyed is far too many people took advantage, quite rationally, of a decade of ultra-low intertest rates and speculated with the cheap debt to grow house prices beyond any sensible ratio to income. Which is all fine. Until a global force majeure comes along, or two in quick succession, which requires nations to have the freedom to raise interest rates to effectively combat the inflationary forces. But due to the side effects of QE since 2008 there is no room to manoeuvre to raise interest rates beyond mid single digits. This has been suggested for years now. Yesterday was another hint. The only rational action is more QE. The only outcome of more QE is devaluation.

This was even being publicly hinted at this week  (rather than privately commentated on for years) when I heard commentary on R4 about the national debt of the US, UK and Eurozone countries not being sustainable beyond a certain rate of interest and getting into a death spiral.

[Oldmanmatt]

The widely-held expectation by market commentators is this will eventually devalue the dollar, pound and Euro beyond recovery.

In favour of what? Renminbi? Or bitcoin, sounds a lot like the youtoob crypto-loon 'great reset' theory? Which despite some enthusiasm for crypto I have no truck with. It ignores that currency is ultimately a human tool, not some force of nature. North America and Europe collectively doing an Argentina is not realistic.

There is the odd, major, Asian currency, knocking about for safe(r) haven given a storm in the West; before resorting Crypto-loon (sic).

[Fultonius]

Ultimately the end game of the never-ending growth, debt fuelled merry-go-round is likely to commence at some point. It will start with turmoil, and everyone clamouring to maintain the "status quo", there will probably be some global geopolitical strife, maybe some kind of climate crisis thrown in for good measure. Sound familiar?

I guess trying to come up with an alternative that hasn't been shown to be an outright failure in the past (communism) that keep us all productive and happy and healthy, and allows some kind of markets to function, but doesn't rely on endless exploitation is just too hard for our ill-equiped human brains to figure out and agree on. So it'll probably all just go to shit in a massive war and we'll fight over the scraps afterwards.

That's my thesis. Fortunately a broken clock is right twice a day, so maybe one day I'll seem prescient 

[petejh]

Yeah you're bound to be correct eventually in an infinite universe

Reminds me of the 'dr doom' character who was quoted earlier this week on the £/$ who predicted 27 of the last 2 recessions.

[Wellsy]

Ideology can't be ignored, it is the basis behind the budget was brought in. As it is behind every budget, and indeed most things in politics, maybe everything. You can just pretend it doesn't exist if your own ideology is a kind of morally neutral capitalistic self-interest because that largely is in line with the centreline of modern society, but even then, it is a pretense, because that in of itself is an ideology.

[petejh]

The widely-held expectation by market commentators is this will eventually devalue the dollar, pound and Euro beyond recovery.

In favour of what? Renminbi? Or bitcoin, sounds a lot like the youtoob crypto-loon 'great reset' theory? Which despite some enthusiasm for crypto I have no truck with. It ignores that currency is ultimately a human tool, not some force of nature. North America and Europe collectively doing an Argentina is not realistic.

You’re sort of missing my point. I’m uninterested what currency, if any replaces or doesn’t replace a perpetually devaluing western fiat. As you say all fiat currency is a (very useful) human construction anyway and in a situation of global peril the world could just keep constructing more fantasy currency.
I’m not a ‘great reset’ type of guy either. Although government digital has to make an appearance at some point.

The point is that the current system is beginning to meet the limits of room to manoeuvre in response to global events. To keep the current financial system working will eventually involve more QE because the alternative is far worse.

And to say currency isn’t a natural force is true, but misses out that the ‘real stuff’ it buys is. And the next decades of energy transition, digitalisation, 5G, automation etc. is all underpinned by the need to purchase a lot of real stuff that comes out of the ground.

All imo of course.

[teestub]

Article about the pension situation which was useful to attempt to understand the mechanisms https://www.theguardian.com/business/2022/sep/29/id-never-seen-anything-like-it-how-market-turmoil-sparked-a-pension-fund-selloff

I feel what I really need is Anthony Bourdain (RIP) explaining through the medium of a fish pie.

[Wellsy]

Tories polling at 21% (-7) Labour at 54% (+9) according to Britain Elects

Womp woooomp

[Bradders]

Terrifyingly the talk in some places is now that Truss should stick with the tax cuts, but row back on the energy price cap! I think I'm starting to come around, that really would be mental!

Looks like absolute carnage in the housing market is now inevitable too. Offers being pulled all over the place. Something has got to give surely, it seems pretty obvious that whatever you think of the budget it cannot get past cold hard economic reality.

[jwi]

Tories polling at 21% (-7) Labour at 54% (+9) according to Britain Elects

Womp woooomp

For an outside observer it will be interesting to see if the Tories will vanish as a political force, much like the Socialist party in France (from always being the biggest or the second biggest party to being the 10th largest) or the Christian Democrats in Italy (who went from being the biggest party forever to being dissolved) did.

Total implosion has happen before in other countries, and right now that looks what is going to happen in the UK, but I realise that a year is forever in politics.

[Fultonius]

The energy price cap was also a terrible idea they way they had implemented it. Basically the govt would be on the hook for any spending about £2.5k, so those in big, inefficient houses could stop worrying about saving energy...

It would be much, much better to ring-fence a certain proportion of UK gas at a fixed rate for domestic use and shield us from the price hikes. If gas was profitable last year, then clearly the O&G companies don't *need* the high prices. That would be a bold but probably well supported move.

Seeing as Truss is in bed with the hedge fund managers and oil companies, the chances of that happening are...

[sxrxg]

The energy price cap was also a terrible idea they way they had implemented it. Basically the govt would be on the hook for any spending about £2.5k, so those in big, inefficient houses could stop worrying about saving energy...

This isn't the case though is it? The energy price cap is a cap on the price of the units of energy based upon a maximum £2.5k for a theoretical average house (the government is to pay the difference between what the companies want for a kWh energy and this capped limit). If you use more energy you still get charged more and it can be significantly above £2.5k. I might be wrong however this is how I believe it to be implemented.

[sdm]

The energy price cap was also a terrible idea they way they had implemented it. Basically the govt would be on the hook for any spending about £2.5k, so those in big, inefficient houses could stop worrying about saving energy...

This isn't the case though is it? The energy price cap is a cap on the price of the units of energy based upon a maximum £2.5k for a theoretical average house (the government is to pay the difference between what the companies want for a kWh energy and this capped limit). If you use more energy you still get charged more and it can be significantly above £2.5k. I might be wrong however this is how I believe it to be implemented.

You are right.

But it's not surprising that people are getting confused considering Truss keeps saying that no home will have to pay more than £2500.

[mrjonathanr]

This isn't the case though is it? The energy price cap is a cap on the price of the units of energy based upon a maximum £2.5k for a theoretical average house (the government is to pay the difference between what the companies want for a kWh energy and this capped limit). If you use more energy you still get charged more and it can be significantly above £2.5k. I might be wrong however this is how I believe it to be implemented.

You are exactly right. £2.5k is an illustrative figure only.

[TobyD]

Tories polling at 21% (-7) Labour at 54% (+9) according to Britain Elects

Womp woooomp

For an outside observer it will be interesting to see if the Tories will vanish as a political force, much like the Socialist party in France (from always being the biggest or the second biggest party to being the 10th largest) or the Christian Democrats in Italy (who went from being the biggest party forever to being dissolved) did.

Total implosion has happen before in other countries, and right now that looks what is going to happen in the UK, but I realise that a year is forever in politics.

It is. It felt like the Conservative party was in as bad a place during party gate, and the Cummings: Barnard castle saga, but they're good at recovering from these things. People predicted that labour was finished after the 2019 election now it looks pretty good.

[Fultonius]

This isn't the case though is it? The energy price cap is a cap on the price of the units of energy based upon a maximum £2.5k for a theoretical average house (the government is to pay the difference between what the companies want for a kWh energy and this capped limit). If you use more energy you still get charged more and it can be significantly above £2.5k. I might be wrong however this is how I believe it to be implemented.

You are exactly right. £2.5k is an illustrative figure only.

Ah, OK, that makes more sense, thanks. I hadn't dived into the detail myself, but I recall someone making the same argument against it I just did.

I still think a domestic ring-fence would be a good idea though....

[Offwidth]

Article about the pension situation which was useful to attempt to understand the mechanisms https://www.theguardian.com/business/2022/sep/29/id-never-seen-anything-like-it-how-market-turmoil-sparked-a-pension-fund-selloff

I feel what I really need is Anthony Bourdain (RIP) explaining through the medium of a fish pie.

Cheers. What's not so clear in that article is these LDIs are leveraging on gilts. I never knew this before this week and it's completely nuts. The story we are told is that gilts are the 'safe' part of a pension fund's assets...it seems they have been leveraging up gilts to help meet scheme yield requirements, and as such gilts become as unsafe as other more 'risky' portfolio assets.

An actuary popped in to explain things on t'other channel:

https://www.ukclimbing.com/forums/off_belay/pension_funds-752430?v=1#x9690505

It's really sad to find the markets have discovered a new way to destabilise what was an excellent financial product: the Defined Benefit pension. It's surely just a coincidence that DC schemes make the pension providers bigger profits. The broken DB valuation system (which cascades pessimistic assumptions) was bad enough... the one that said the Miners' DB scheme had a huge financial deficit and had the Telegraph frothing at the mouth about the government taking it over.....the reality is because the valuation methodology was way too pessimistic the Miners' scheme has provided huge profits for the government coffers...4.5 billion so far and still growing. Another nail in the DB coffin makes pension choices so much worse for future generations.

I ended up dealing with extensive information on this DB subject as the USS DB scheme valuation became a big issue.   In USS, assets were growing 5-10% faster than inflation on average, wages growing consistently slightly less than inflation on average, staff numbers and grade distributions were roughly constant, highest pensions capped, yet the valuation kept going down, due to QE (and before that up and down like a yoyo). It was as clear as mud that the valuation methodology had become completely disconnected from the reality, of the scheme's ability to meet its future pension payments, and amplified market changes like a control system on the edge of stability.

On a similar subject I've just been reading a interesting Guardian article on how commodity deregulation has led to wild swings (that trigger cirises) that bear no relevance to actual supply and demand:

https://www.theguardian.com/business/2022/sep/30/rupert-russell-interview-price-wars

Word of caution though:  I'm a centre left ideologist who believes in improved market regulation.

[Offwidth]

A good read on DB pensions posted on t'other channel (cheers 'Max')

https://www.bloomberg.com/opinion/articles/2022-09-29/uk-pensions-got-margin-calls

[Bradders]

Kwarteng doubling down on the budget in the Telegraph today;

https://www.telegraph.co.uk/politics/2022/09/30/no-doubt-expensive-intervention-nothing-not-option/

Focus very much on the energy price cap, which is understandable but clearly not the bit that actually needs defending!

[teestub]

Wonder if the OBR report will be ‘accidentally’ leaked next week rather than making everyone wait six weeks.

[TobyD]

Interview with Simon Case in the times today, he talks about trimming the extra fat off public services... As though a decade of austerity wasn't enough. You've got to wonder if this idealism will fly in an election.

[ali k]

Simon Case or Clarke? Bit controversial for a civil servant to be doing political interviews if the former.

[TobyD]

Simon Case or Clarke? Bit controversial for a civil servant to be doing political interviews if the former.

Apologies,  i was wrong,  Clarke was who I meant,  the treasury minister. 

[TobyD]

This morning's U-turn just makes the government look weak and chaotic.  One thing to be an adamant idealoge who claims not to change their mind, but then running away from your decisions is obviously going to make all their backbenchers think it's worth threatening to rebel on votes, if they might be able to get their own way. 

Kwarteng sounded pretty awful when he was interviewed on the Today programme this morning.