Our response to the Chancellor’s fiscal event

Problematic mini budget, clouded in intricately contradictory elements.

Intricate in that it can easily be presented as a wholly positive “fiscal event”… Yet without doubt this is simply putting spin on economic projections that appear based on only ideology and speculation. The evidence doesn’t support the ideology, when you drill into it. The inflationary consequences of previous stimulus, eroded the value of the stimulus and exacerbated recession. When we look at comparative graphs between tax take as a percentage of GDP, and GDP growth rates, there are several standout countries with both higher tax take, and higher average income per head – and higher GDP growth rate, with higher taxes… We do not believe taking higher taxes per se is it good thing, at all – but, conversely, increasing money circulation through lowering tax rates, in a time of inflationary expectations is counterproductive. Even, we believe, in the context of offsetting sector inflation by capping both domestic and business energy prices.

In our opinion, one of the elephants in the room is also political: the reversal in the increase in NIC. It’s not that we particularly advocated the NIC increase, but rather applauded the need to attempt a deliberate hypothecation of funds to pay for Social Care. This has now been removed and will add to overall borrowing and the cost of government debt, itself adding to upwards interest rate pressures. In addition, as quoted in The Economist: “an interest rate of just 3% today results in mortgages that absorb the same share of income as a rate of 14% did in 1980, after adjusting for the fact that mortgages are bigger and mortgage interest is no longer tax-deductible, calculates Neal Hudson of BuiltPlace, a housing website.”

That great old phrase “cash is fact the rest is fiction” is illustrated in the increase in today’s gilt yields, up by over 35 basis points on 10-yr gilts – and a huge 3% fall in the Sterling against the Dollar. This shows markets simply don’t trust Kwarteng’s mini budget. A falling currency makes imports more expensive, further fuelling continued inflation. We think that it is strategically confused and presents an expansionary Treasury against a contractionary Bank of England. Early days, of course, for this new incarnation of the Government, but macroeconomically, this budget makes little sense.

Yanis Varoufakis and the Left must engage with ‘ever-changing’ blockchain technology – or risk missing a golden opportunity

Yanis Varoufakis and the mainstream left in economics must take the potential of blockchain technology seriously, an advocate has argued.

Yanis Varoufakis and the Left must engage with ‘ever-changing’ blockchain technology – or risk missing a golden opportunity

Interesting piece by Ben Arc, on the Redaction Politics site…

Don Johnson and mafia politics

What is currently happening in British politics is more suited to Latin America, or Italy, with cartel or Mafia leadership.

Don Johnson wants to assert his supremacy over the five families, and in Dominic Cummings he has the most lethal Capo of all. A guy so well drilled, he can only see the endpoint, and not all the carnage caused en-route…

There are acres of newsprint already dedicated to the minute intricacies of Westminster vs European manoeuvrings so I don’t intend to elaborate further here. The phrase, “A Very British coup” seems as ill placed as it could ever possibly be. This is not a very British coup – it is a Latin American guerrilla government, operating with a tactical lethality that would be impressive to behold if we were watching it from afar, which sadly we’re not.

It’s been said for many years now that the Conservative Party would sell tickets to a public display of them eating their young if they could, but the fact that they’re eating their elder statesman is a turn of events few could have foreseen. Thankfully the elder statesman are not intending to go quietly, and in the guise of Ken Clarke and Philip Hammond, they are proposing what seems a quite sensible delay to what seems to be our flinging ourselves off a cliff. Depending on how European you consider yourself to be, determines how high that cliff seems to be and the state of the waters at the bottom, but venturing further into this analogy would take us into the minutiae I have been so far avoiding.
At least in a Banana Republic there are bananas. Here they’re stuck in a lay-by outside Dover waiting for customs clearance.

Damian Merciar

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