BF2S Forums Where are all the whiny peaceful "Enlightened" European now?

Last edited by uziq (2022-10-24 02:48:07)

But Britain has had a very long line of moronic partying Oxford humanities toffs

Last edited by uziq (2022-10-24 03:00:59)

Last edited by uziq (2022-10-24 03:31:59)

Last edited by uziq (2022-10-24 04:12:28)

It was nothing to do with the political reaction in the UK. Yes, the policy caused uproar here because, in the current state of the country, giving a tax break to the highest earners, while inflicting cuts and austerity to pay for it, is cruel and stupid. But markets don’t care about that. The policy caused a run on the pound because it was uncosted. Kwarteng refused the offer of an assessment of the tax cut by the Office for Budget Responsibility, because he knew what it would say: that it would have no positive effect on growth. Bear in mind that the OBR was set up specifically to do this job: to provide independent assessments of the public finances. The uncosted new policy became, to markets, a signal that the new government is not serious and doesn’t know what it’s doing. Truss can wear as many pussy-bow blouses and sit on as many tanks as she wants, but while her policies continue to be uncosted, it’s Larp Thatcher, not the real thing. Markets don’t want a G7 economy to be led by people playing ‘let’s pretend’.

The fiasco has one aspect which is funny and two which are frightening. The funny side is the spectacle of people whose ideology is based on worship of the free market having their political prospects destroyed by that very same market. The howls of protest and conspiracy theories on their side make it even funnier. Daniel Hannan, the Brexiter former Euro MP who is so reliably wrong that the New Statesman ran a column called ‘What is Daniel Hannan demonstrably wrong about this week?’, wrote that ‘what we have seen since Friday is partly a market adjustment to the increased probability that Sir Keir Starmer will win.’ Amazing: the sterling crash was the fault of Future Labour. Crispin Odey, a hedge-fund manager who helped finance the Brexit campaign (he also happens to be Kwarteng’s former employer), blamed the multi-trillion-pound international market reaction on ‘Remainers who just decided that they hate this government’. It obviously wasn’t that: it was just the market passing judgment, as markets do. James Carville, Bill Clinton’s campaign manager, famously said that if he was reincarnated, ‘I want to come back as the bond market. You can intimidate everybody.’ He was talking about exactly what we’ve just seen.

That’s the, admittedly brief, funny side. Of the scary consequences, the first came during the market meltdown. Under normal circumstances, the fall of sterling would have limited immediate consequences for most citizens. (Big stress on ‘immediate’.) Bad news if you’re going on holiday, and likely to lead to higher interest rates in the undistant future, but not a systemic crisis. What was different this time was that thanks to innovations in the UK pension system, pension funds were exposed to derivatives risks linked to UK bond prices. That sounds dry: the reality was anything but, and British pension funds came within hours of going broke. It was a crisis in the same league as the near-death experiences of October 2008, and the only thing that prevented full-scale disaster was the Bank of England saying it would spend as much as £65 billion buying UK bonds. That thing when you nearly step into the street without thinking, and somebody pulls you back, and a lorry zooms past, and you feel suddenly frightened in retrospect because you nearly got run over? The UK has just been through that.

The second scary thing will play out over a longer term. Before Kwasidämmerung, the UK’s monetary policy was based on the gradual unwinding of quantitative easing. During QE, the government printed electronic money and used it to buy back its own bonds – that is, its own debt. That made the price of bonds go up, which in turn made the yield on bonds – the interest rate, in effect – go down. This policy had upsides and downsides. One principal criticism of QE has always been that it would be difficult to undo. The bank’s plan was – officially, still is – to divest itself of £80 billion of QE-bought bonds a year. But now the bank is overwhelmingly likely to raise interest rates. A crash in the currency is a sign that people don’t want to invest in your country. Unfortunately, the government needs to borrow money to pay its bills. To get doubters to lend you money, you have to pay them more – and when you raise interest rates that’s effectively what you’re doing. It’s the opposite of buying your own debt; the opposite of QE, which makes interest rates go down. This means that the UK is stamping with full force on both the accelerator and the brake. In the words of the International Monetary Fund, ‘we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.’ The IMF, which routinely bullies and hectors emerging economies, never, ever, talks like that to rich countries. In plain English, what it’s saying is ‘Don’t be so fucking stupid.’

Last edited by uziq (2022-10-25 02:02:04)

Apparently Sunak and Mordaunt both promised the ERG they would tear up the NI protocol.
This would mean no prospect of a trade deal with the US or EU - far more damaging in the long term than a mild blip in sterling.
So that leaves a trade deal with India - free migration for Indians to the UK will be the price.

Last edited by uziq (2022-10-25 02:43:19)