Most people aren’t playing close attention. They will be guided by the general sentiment of the newspapers and how full their pockets are feeling.
Paul Krugman has an opinion piece in the NY Times about Truss economic moves: “The Tax Cut Zombie Attacks Britain” (Gift link)
As you might guess from the headline, he is not sanguine about Truss’ plans.
I’ve written a lot over the years about zombie economic ideas — ideas that have failed repeatedly in practice, and should be dead, but somehow are still shambling around, eating policymakers’ brains. The pre-eminent zombie in American economic discourse has long been the belief that cutting taxes on the rich will create an economic miracle.
That belief is still out there: Even as its infrastructure was collapsing to the point that its largest city no longer had running water, Mississippi tried to raise its economic fortunes with … a tax cut. But in America, zombie economics has lately been overshadowed by zombie beliefs about election fraud, the impact of immigration and so on.
Britain, however, doesn’t (yet?) have an equivalent of the MAGA movement. What it does have is Liz Truss, a new prime minister who seems to be an ardent believer in economic fallacies from the Thatcher/Reagan era.
Much of the article goes toward demonstrating his central thesis around tax cuts for the rich, but he concludes with this:
But right now, British markets aren’t acting like those of an advanced country. They are, instead, behaving like those of a developing country, in which investors tend to see budget deficits as a sign of irresponsibility and a harbinger of future policy disaster.
The markets may be overdoing it. Britain isn’t Argentina, and it surely has the economic, the administrative and, I think, the political capacity to turn things around. But the fact that markets are treating it as if it were Argentina shows just how extraordinary a crisis of confidence Liz Truss has managed to create within days of moving into No. 10 Downing Street.
Hmm… Truss as Evita… Definitely the second-string provincial touring company version.
Big tax cuts during a period of high inflation is certainly an “interesting” economic experiment and with a falling currency and energy crunch also in the mix you have to wonder just how high inflation is going to rise in the UK and how long and painful it will be to get it under control.
That depends on how successful Truss is on blaming all the problems on the existence of the poor.
I assure you that Truss, Kwarteng and friends are doing their best to make the existence of the poor go away.
This is absolute shitshow territory.
The pound is crashing against every major currency and most minor ones.
Yield on gilts of any duration has gone up 30-40 basis points, implying future interest rates of government debt of c.6%. This in turn implies mortgage rates of 7-8%. People are paying 3.5% or less now. When those deals run out and people go to SVR or remortgage, they’re going to be doubling their monthly mortgage payment - or more. That’s alongside soaring energy bills, current inflation and whatever inflationary effect the weak pound has on an economy that is a net importer.
There’s going to be a housing crash. There’s going to be a recession. We are just entering Truss’s third week in office.
These are not very bright guys, and things are rapidly getting out of hand.
New YouGov opinion poll has given Labour their biggest opinion poll lead since records began…
It’s puerile of me I know, but I do love it when the Tories go into headless chicken mode:
No, not the poor- immigrants. Especially brown ones.
The Bank of England is now reversing its policy of Quantitative Tightening to announce it will spend the next two weeks buying long-term bonds in a desperate effort to shore up the price in the wake of the collapse of UK government debt and the subsequent rise in yields over the past couple of days.
Its statement advising the markets of this policy change makes it clear that is doing so because this is a crisis that could get a lot worse very quickly if it doesn’t take action.
The cause of the UK central bank intervening in the UK debt market is, let’s not forget, the recent fiscal policy announcement of… the UK government.
This is a total fuck up with massive negative implications for people who have to pay mortgages, people who have to live in houses, people who buy things from abroad, people who were thinking about borrowing to invest, the UK economy generally, and last but not least, the electoral prospects of the Conservative and Unionist Party of Great Britain.
As the Governor said in his statement on Monday, the Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets.
This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.
I have bolded the words you don’t particularly want your flagship economic policy to have caused your central bank to utter.
I’m sure it’s unrelated to the fact that the IMF issued a statement which, when the dry bureaucratic language is de-obfuscates, says bluntly the people running the UK’s economy are idiots who don’t know what they’re doing.
I’m sure this is just a perfectly normal course adjustment, not worth further comment.
“Tax cutting strategy likely to increase inequality”
So this is pretty bad:
(Ed Conway is a serious journalist, not what you’d call sensationalist)
So basically:
Following the “mini-Budget” markets lose confidence in the government and the price of even long-term government debt falls and interest rates rise. This means that pension funds who are hedging based on long-term interest rates are faced iwth margin calls and have to start liquidating everything inc. bonds to meet them, thus driving down the price of bonds, thus forcing higher margin calls…
If the BoE hadn’t acted, it seems a lot of shit would have gone very bad very quickly.
Again, not necessarily the results you’d hope for from the major fiscal announcement with which you planned to define your entire premiership.
A lot of tories (Including that complete and utter tosser John Redwood) are doing the rounds trying to say that this is the cause of the situation !
WANKERS.
The UK right-wing are blaming EVERYONE but themselves for the current situation:
- It’s the Bank of England’s fault for going against the government.
- It’s the IMF’s fault for saying bad things about the mini-budget.
- It’s Keir Starmer’s fault because the markets have suddenly realised that he’s going to be Prime Minister in two years’ time and this is somehow bad right now.
- It’s the fault of those other investors shorting the pound for personal profit (which of course Conservatives would NEVER do).
- It’s the fault of Remainers because they want the country to fail and besides which everything is the fault of Remainers, neener neener, no takebacks.
- A big boy crashed the pound and ran away.
The Tories have gotten everything they wanted and it is exactly the disaster everyone else knew it would be. Their desperate flailing about it would be amusing if it weren’t for the horrible damage being done to the country.
Quick quiz everyone:
You’re the PM. You go on to local radio for your first public interviews in the six days since your first major policy announcement, which has disrupted the gilt markets and nearly caused a run on pension funds, . You are asked, “Are pensions safe?”
Do you answer:
a) “Yes” without hesitation
b) Literally anything else.
Congratulations! If you said a) you are better at this than our current PM.
By the way, for those of you who miss the old Yes Minister show, a former Doper is doing a very good updated version of it on Twitter…
There’s this thread…
…and this one:
The nickname for Liz Truss amongst city traders is apprently “daggers” - as in Dagenham, 2 stops beyond Barking…