[petejh]

As you know Matt currently no better alternative has been discovered than the social construction* that is our financial system. We're all ears if you know a better way though. Lots have tried, most are in communes sharing food for labour. Try building a superyacht for carrots. 



* social construction being a system of belief that has no external reality in the universe outside human beliefs. Other useful social constructions that smooth the sharp edges of different tribes of humans getting along on a shared planet: justice, human rights, the law, morality, values, religion.

[ali k]

Hard to argue with this. The last few weeks is the inevitable conclusion of the Brexit delusion.

https://www.theguardian.com/commentisfree/2022/oct/14/markets-take-back-control-brexit-humiliation-britain-suez

Even the Telegraph recently published an article admitting ‘Project Fear’ is being proved right.

[BrutusTheBear]

As you know Matt currently no better alternative has been discovered than the social construction* that is our financial system. We're all ears if you know a better way though. Lots have tried, most are in communes sharing food for labour. Try building a superyacht for carrots. 



* social construction being a system of belief that has no external reality in the universe outside human beliefs. Other useful social constructions that smooth the sharp edges of different tribes of humans getting along on a shared planet: justice, human rights, the law, morality, values, religion.

 
Ahhh.  The old the system is shit, suggest something better argument. 'Nothing has been discovered'; the present system wasn't 'discovered' it was created and as such it can be changed.  Not even an attempt to improve it? Nope there's nothing better let's just keep on going until someone 'discovers' something.  Madness.
Reminds me of a run in with my mentor when I was teacher training... 
'You should have put him in detention'
'Oh, is he in detention a lot then?'
'Yes. Quite regularly since being at our school'
'Clearly, it's not an intervention that's working then.'
My mentor had steam coming out of every orifice, the cheek that I would challenge a system that's not working for someone.  Could we try something else?  Nope, that's the system we've always used.  Madness!


OMM the emperor's dick is indeed swinging in the wind..  Found this interview with a former top city trader really informative and depressing but it's good to know what these people are up to.  UKB middle class dad massive be afraid THEY ARE COMING FOR YOUR HOMES!

[petejh]

Umm.. I was talking about money being the best system we've so far devised for a means of exchanging goods and services. Not capitalism per se.

Don't let that stop you being triggered into a rant about capitalism though. 

[danm]

Worth it though for getting the link to the video! Very interesting stuff and well explained.

People have explored alternatives to the current economic system which is both unsustainable and which is making the vast majority of us poorer, read this for example: https://www.goodreads.com/en/book/show/49098225-another-now

[BrutusTheBear]

Umm.. I was talking about money being the best system we've so far devised for a means of exchanging goods and services. Not capitalism per se.

Don't let that stop you being triggered into a rant about capitalism though. 

  It was brewing... The rant that is.  Probably because I'd just watched the video and then read OMMs post.

[Wellsy]

It's definitely aggravating when you're a regular person just going to work and paying your mortgage and doing the odd bit of reading and climbing and taking drugs until 6am, and then the cunts who run the government and control the markets and generally profit of all our lives fuck everything up and suddenly your mortgage is way more and the cost of living is shooting up faster than whatever it is Elon Musk has wet dreams about.

Like I get the nature of the system and it is useful at times (if distasteful) but it definitely feels like it could be a lot lot lot fucking better.

[mrjonathanr]

Interesting vid Brutus. He talks with clarity. What he didn't mention was the long-term trend dates since the early 80s as neoliberal economic policies have held sway, inequality somewhat obscured for a while by the influx of North Sea oil.  Looking at the % increase in house prices over time there's a clear correlation. It should be obvious that if home ownership becomes increasingly out of reach and the threshold keeps getting higher, those who feel safe now, in time will not be. The tide keeps rising and eventually will wash away the middle classes as well as the poor.

[mrjonathanr]

Source https://goodmove.co.uk/blog/average-uk-house-prices-1980-2050/ Whether the detail is accurate or not, the overall trend is unarguable.

[seankenny]

Are those figures adjusted for inflation? I’m not sure they are. And the website says they just used a linear forecast function. For 30 years into the future.


 

[mrjonathanr]

For illustration only… if you have time to produce a more reliable picture, please do. Here’s another adjusted view, https://www.allagents.co.uk/house-prices-adjusted/
The overall trend is still massive inflation compared to median wages ie increasing unaffordability since the early 80s. As for the future, who knows, but I can’t see house prices failing to rise relative to wages.

[seankenny]

But using a time series of prices without adjusting for inflation doesn’t tell you anything about how expensive something really is…

I think it is unlikely we will see house prices go down in real terms but you never know. Crashes happen. The point is that it’s a complex interplay of factors and any graph that just makes a linear extrapolation is junk!

[Nigel]

If Corbyn had been in power I imagine the markets would have forced the same process on Labour that the Tories are undergoing. It says a lot about how detached and unrealistic party members are collectively on both sides and they shouldn't be allowed anywhere near the process if you want an an effective party leader with appeal outside their little bubble...

Yep no doubt. Wonder if, in an alternate universe, Corbyn and McDonnell would have persisted in the face of market pressure against whatever policy they were trying to pass. The hard left seem even more authoritative once they have their power challenged even than the hard right. Maybe would have had Andrew Bailey sent to the tower for re-education, or just prolonged turmoil.

If MPs had the whip hand we might well be several years into an Owen Smith government. If only eh? There are good arguments for party members to have a say but I can't see them getting a hearing given the system has just given us Truss! Don't forget Tory MP's do carry half the can on that - they put a white Thatcher tribute act into the final two against a non-white tax-raiser the members saw as the one who brought down their darling. What did they expect to happen? They must have met their membership, they can't all be tortoises / Russian bots.

So I actually wanted to make a futile rearguard defence of this lazy equating between the "hard left" and hard right. Yes, Corbyn and McDonnell may well have received a similar market reaction to thir plans *if* they had won the 2019 election. In fact there was plenty of commentary at the time warning of this. Here you go https://www.telegraph.co.uk/business/2019/11/25/labours-manifesto-could-cause-run-sterling-economists-warn/ Look who they got for a quote, Mark Littlewood of the free-market nutters behind Truss, the IEA. How easily he forgot his own advice eh?

Anyway, there are numerous differences between then and now - Labour's 2019 manifesto was costed. I know that involves lots of guesswork especially on nationalisation but at least they tried to do the sums. Truss just delivered an actual budget which was not costed. Labour in their extreme leftness did not accuse the OBR of orthodoxy and leave them out of the loop. Truss did. They didn't accuse the Treasury of the same, and sack the top civil servant on day 1. Truss did. They didn't spend weeks undermining the Bank of England on TV. Truss did. McDonnell toured the city flagging his plans in advance. Truss didn't. In terms of "hardness", Truss is much, much more extreme to the right than Corbyn was to the left, although no-one even calls them hard right! Except...according to a survey of economists by the FT, at the mini-budget they were the most economically right wing government in the developed world:



Labour 2019 proposed to borrow 400 billion over 10 years at very low interest rates to invest in capital projects - green energy and new schools and hospitals i.e. growth. They wanted to fund day to day spending by increasing corp tax to 26% (look familiar!) and increasing the top rate of tax. It was not communism, it was more akin to how normal European countries operate. Tories 2022 proposed to borrow money at much higher interest rates to keep corporation tax very low and give a tax cut to the very rich, along with bunging energy companies lots of money to keep energy bills at a still high level. Both Corbynomics and Trussonomics have a large element of faith in that they rely on being able to placate the markets re future debt payments, so in that way they are similar. On everything else to do with economic orthodoxy Truss is way, way more out there...

Anyway, that's old news I know, as the country actually had a vote on Corbynomics and although over 10 million people voted for it, it was rejected. Fair enough. However what the voted for instead was Brexit + Levelling Up (remember that) i.e. 40 new hospitals, 20,000 more police and nurses, reduced regional inequality, investment in infrastructure. After this summer's right wing coup they were being force fed Singapore-On-Thames.  Absolutely no-one voted for that. This whole episode is the denouement of that hardest version of Brexit, which appears to have exploded on contact with reality. If anyone is looking for a silver lining in all this, then that is it.

Since the rich persons trade union (Tories) went on strike over the summer to fight amongst themselves during an energy crisis, the UK 10 year bonds went from being similar rates to Spain's, to increasingly less credible, until more or less on a par with Italy at point of mini-budget. At the same time Italy were electing a government which our own media happily describes as "far-right" - and their borrowing costs barely flinched! The past view months have seen our international borrowing credibility trashed and that is UK specific and directly caused by the Truss budget - shown by our red line moving out of step with other countries here https://en.macromicro.me/collections/43/eu-market-relative/535/eu-10-years-bonds-yield-rate-countries-in-europe

If now to fix the financial black hole caused by this we have to return to austerity then there is no mandate for that either.

With 2022 hindsight, in 2019 you had a "hard left" nutter offering to build a UK green energy network, repair austerity, and reverse the flow of inequality that has led to the top 10% holding 44% of the wealth (https://equalitytrust.org.uk/scale-economic-inequality-uk). The risk was market instability. Now we have the market instability but with absolutely nothing to show for it. It doesn't look worth it. Just my opinion.

[danm]

But using a time series of prices without adjusting for inflation doesn’t tell you anything about how expensive something really is…

I think it is unlikely we will see house prices go down in real terms but you never know. Crashes happen. The point is that it’s a complex interplay of factors and any graph that just makes a linear extrapolation is junk!

Until the rich have their assets taxed to recoup the ongoing and vast transfer of wealth from the many to the few, house prices will continue to rise, because what else are the rich going to spend their vast hoard of cash on otherwise?

[seankenny]

My point is not that taxing wealth is bad. It’s more that there are many determinants of house prices and any of them could change, either as an intended policy outcome, as an unintended policy outcome, or from some outside shock or trend. We don’t know what those will be yet, and history is full of examples of periods in which things seemed settled but which later turned on a dime. Total market chaos in 1930, but in just 20 years you see the imposition of a world financial system that overturns that of the previous century and which still exists in part 70 years later.

[petejh]

And there it is, killed by the Hunt. Tory left and Labour right now the same party hooray.

Until the rich have their assets taxed to recoup the ongoing and vast transfer of wealth from the many to the few, house prices will continue to rise, because what else are the rich going to spend their vast hoard of cash on otherwise?

The heating bill.. Can't even burn £10 notes to stay warm anymore since they went synthetic.

More seriously. For a tax there there has to be a figure in black+white above which a tax applies, or it doesn't work. Who in your socialist utopia classes as rich? What figure do you have in mind when you say this stuff? Personally, I'd not argue with any government making owning more than two houses financial suicide. Taking the asset price inflation out of a speculative housing market would cure many ills. Would be one of the largest wealth transfers in reverse ever. But entrepreneurs growing a business (no not a buy-to-let 'business'), no way should they be over taxed imo.

[ali k]

So Labour’s position on energy price cap was to review after 6 months.

Truss spent the entirety of last week’s PMQs repeating ad nauseam how her policy was better cos it lasted 2 years and Labour were cunts for not supporting it.

That’s now been changed to…errrm…let’s review it after 6 months.

This week’s PMQs is gonna be awks.

[Nigel]

And there it is, killed by the Hunt. Tory left and Labour right now the same party hooray.

You can almost taste the democracy, its visceral! I for one welcome our new IMF / bond market / unelected placeman overlords....

[Nigel]

Actually I don't, because the happier they all are, then by implication the steeper the spending cuts will be. If only there were some way of putting various proposals out there to ask ordinary people what they think?

[petejh]

I for one welcome our new IMF / bond market / unelected placeman overlords....

Correct. Money talks… And there’s going to be an awful lot of further cheap QE money and lowering of bank rates needed to be available as tools for the CB’s to flood markets at some point in the early-mid 2020s, at just the most effective moment to to pull the west out of the hole. Can’t have bank rates rising too high too rapidly at the wrong moment. Ceiling of pain is the historically completely normal 5 - 6% rate, above this US and European economies in their current post-GFC low borrowing cost forms become crippled by debt costs. Part of the reason these policies needed to be killed so quickly. Ineptness at communicating and politics of course being another big reason.

[James Malloch]

Not my view at all, but a question from a friend which I couldn’t answer…

Any decent rationale to the below question?

“Bond markets were fine with us being 2.3 trillion in debt. So why did this extra 40bn nearly caused a meltdown.”?

[galpinos]

Hunt as Chancellor tearing down Truss' entire economic plan and now she's ducking the UQ from Starmer and sending out Mordunt.

Feels very much like the end a somewhat brief stint as PM.

[jwi]

You can almost taste the democracy, its visceral! I for one welcome our new IMF / bond market / unelected placeman overlords....

I lived through a long period in the early nighties of using a weak currency, shaky government finances,  and having an incompetent but confident government. I do not recommend. If this were to happen to me again, I would — as a card carrying member of the citizens of nowhere — look for a job in another country.

The currency market is mostly just ordinary people. Regular consumers doing everyday choices about what to buy from where and when, and how much to save in what form. Speculators have almost no cash at hand compared to the aggregate demand of all citizens in a  country together with all consumers in every country that trade with that country.

[petejh]

Not my view at all, but a question from a friend which I couldn’t answer…

Any decent rationale to the below question?

“Bond markets were fine with us being 2.3 trillion in debt. So why did this extra 40bn nearly caused a meltdown.”?

That has the relationship a bit wrong. The bond market *is * the debt. In this case government debt is paid for by the DMO selling government bonds (guilts) to pay for government spending.

The cost of that debt is the yield on the bond. And the yield on the bond goes up when confidence in the ability of the government to adequately finance said debt goes down.

It wasn't £40Bn that tipped anything. The cost of the Energy Price Guarantee was/in £60Bn in the first 6 months, and it was going to last for up to 2 years. Then the tax cuts amounted to around another £45Bn in tax take not coming in.

Without details forthcoming of how this could be afforded,  market participants in bond markets demanded a higher yield to compensate for the perceived higher risk of investing in UK bonds. So bond yields rose as market confidence lowered.

In reality there's far more to it than that - not least the market taking advantage of the government putting itself into the position of being a forced seller of bonds by the way it positioned itself with its timing and language when announcing the 'mini budget'. Ineptness. 'Laying the pitch' and all that bollocks is partly preparing the market participants to accept (by believing its a good investment) what you want to sell, in this case guilts.

But compounding the situation was the unintended consequence of defined benefit pension funds having their dirty secrets unearthed by an unlikely set of events, in that to juice their balance sheets a bit they'd been using more leverage than widely supposed, via a sequence of hedges which normally wouldn't be an issue except in a highly unlikely scenario of rapidly rising bond yields... This forced some funds into forced selling of assets to cover balance sheet losses because guilt prices had suddenly dropped (price of a bond drops when its yield rises). Forced selling of guilts dropped guilt prices further, doom price spiral ensues as more funds' balance sheets start to turn red. BoE step in as buyer of last resort.

Bigger picture again is the fact the west cannot, following 12 years of ultra low borrowing costs and imaginary money pumped in to bond markets to provide liquidity in the wake of the GFC leading to repress interest rates, cannot afford rates to rise higher than 5-6% and can’t afford them rising too rapidly (before, some suggest, the last decade of debt is inflated down to more managable levels...) without a crippling severe recession possibly needing further QE type stimulus to get out of. We’ve become too used to low rates and our borrowing habits and debt levels reflect that. Can't have rates rising too rapidly without it all failing. There's quite possibly/probably some heavy CB/US/IMF influence going on to prevent the 'wrong' policy at the wrong time.

[mrjonathanr]

Thanks for the explainer. I like the idea of guilts.