Panic Mode
As the pound plunged to lowest value ever – as Bond Vigilantes struck having no confidence that the forecast free massive boost in government dent, and supply changes changes with no forecast of whether they would work, the markets were panicing as there was no security for the market that inflation would not sprial at the same time that government debt would not spiral, at a time when gilts would be forced to sellat ever higher prices dur to risk premium and at a time when the Bank of England forced to compensate for reckless macro-economic policy forces interest rates up to defend the pound – as otherwise a falling pound would cayse an inflationary spiral as import prices rise, and risking a downward spiral – like an emerging economy – like Britain was in the 1970s – ending in an IMF bailout and massive austerity.
In this panic mode the Tresasury put out an emergency statement at 5.30 today designed to reassure the Bond Vigilanties.
Treasury Update on Growth Plan (also it didnt last a weekend did it?)
On Friday 23 September, the Chancellor of the Exchequer, the Rt Hon Kwasi Kwarteng MP, set out how the government would fulfil its commitment to cut taxes for people and businesses and announced wider supply side policies to grow the economy.
Building on this, as the Growth Plan set out on Friday, Cabinet Ministers will announce further supply side growth measures in October and early November, including changes to the planning system, business regulations, childcare, immigration, agricultural productivity, and digital infrastructure.
Next month, the Chancellor will, as part of that programme, outline regulatory reforms to ensure the UK’s financial services sector remains globally competitive.
He will then set out his Medium-Term Fiscal Plan on 23 November.
The Fiscal Plan will set out further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term.
In the Growth Plan on Friday, the Chancellor set out that there would be an Office for Budget Responsibility forecast this calendar year. He has requested that the OBR sets out a full forecast alongside the Fiscal Plan, on 23 November.
As the Chief Secretary to the Treasury set out this weekend, the government is sticking to spending settlements for this spending review period.
The Chancellor also confirmed that there will be a Budget in the Spring, with a further OBR forecast.
Yes ypu heard that right. More immigration. At a time of near full employmenbt the only way GDP can grow is more immigrants = more wge owners,= a multiplier effect and more consumer expensiture leding to more growth.
PLanning reforms back on agenda.
The first weathervane u-turn an OBR forecast.
The announcment didnt clam the markets the pound fell further.
I planned this blog to be a very academic article on the ‘Treasury View’ which in recent years was morbid fear of Bond Vigilantes raising borrowing costs. The old Treasury view, attributed to Ralph Hawtry (greatest son of Slough, Keynes Great friend and sparring partner) was that public spending would crown out private spending. Both views are based on similar foundations, and those who argue the opposite like MMT theorists make same mistake. The old Treasury view was never true in a recession, the new Treasury view is only true when markets are in turmoil. Both make the mistake of judging economic forecasts on crude views of accounting identies, rather than a sophisticated view, bounded by sectoral balences and accounting identities, of how the market adjusts to expected changes and the dynamics of how when markets shift in nominal terms from changes to inflation and the weighted value of a currency, and hence the speculated value of investments. You cant argue solely from a sctoral balence and an accounting identity, it is the dyanics of change of those identities that matter (equally you make similar mistke arguing without them) and how feedback and multiplier effects impact in the monetary economy and the revaluation of company and household assets.
It all rather pathetic, the right we wrong said a most boost to spending would cause teh vigilantes to pounce are forced into reverse gear when they propose a vastly higher increase in public spoending after claiming the Treasury view – which was their only defence against state spending – as wromng all along. They created the situation, market tourmoil, which iss the only case when the new Teasury view in right. The markets found out the bullshiot economics of claiming 10 different incompatible and posite policies persued at once was alright. As it always would
What is a bond vigilante: those who spculate on government debrt pounching on uncertainty to make superprofits when in their herd like behavious they spot unsustinable macroeconomic mistakes by governments.
Think Nigel Lawson singing in the Bath on Black Wednesday as Sorbos bet against the pounds and earned billions.
Today the markets smell bolld, like sharks when a surfer deliberately cuts themsleves to prove their machismo.
Paul Donovan, the chief economist at UBS, said investors now viewed the Tory party as a “doomsday cult”.
As I keep arguing on here, Truss doesnt want to win, its all about performance art – and hence blaming god when the world didnt come to an end on a certain day
How lomg till the IMF are called in? Outside the Eu the UK is now just yet another weak, unsustainable emerging economy, forced into Barber Boom/Healy style cycle of inflationary boom and decline with the IMF forced to bail them out – probably early next year.
FT Uk Lenders Pause new Mortgaes during Market Turmoil
When the Credit Impulse goes down, a recession always follows, if it collapses housing market we get the worst kind of spirlling down debt-deflation recesion – as we saw in 2007. Usually a once in every other gneration phenomena – not this time, the lessons was never learned and we made it far harder not easier to buld housing.
Decisions, Decisions, Decisions 