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A week after Chancellor Kwasi Kwarteng went full “Reagan” in the House of Commons

“The point is that Britain was in an economic mess before Ms. Truss took office, and there is no alternative universe in which policies that have failed for 12 years suddenly would start working on the cusp of a global downturn. The choice is the gamble of a major policy overhaul, or the certainty of steeper decline. So yes, U.S. Republicans, do take note of Ms. Truss’s travails in Britain. The Tories squandered their reputation for competent, free-market economic management. They now find that it’s hard to win back at precisely the moment they and the country need it most.”

The Wall Street Journal (I seem to be quoting it a lot these days), giving its transatlantic take on the past 12 years of Conservative fecklessness and some occasional sensible moves. Its verdict on the Bank of England is particularly damning:

The Osborne Treasury and the Bank of England under Governors Mervyn King and Mark Carney set the tone by “looking through” above-target inflation for four years from 2010-13, and again in 2017-19. The central bank ignored its price-stability mandate in order to hold interest rates at historic lows while suppressing government borrowing costs with quantitative easing.

This stoked asset-price inflation, especially in housing, while suppressing productive investment and real wages. Inflation-adjusted pay fell 6.7% from 2009-14.

Mr. Carney’s successor Andrew Bailey poured on generous monetary stimulus during the pandemic, and he has been slow to withdraw it as the inflationary crisis deepens. One day before Mr. Kwarteng’s tax announcement, Mr. Bailey gave markets a bad surprise with a dovish 50-basis-point increase in interest rates rather than a 75-point raise that would follow the Federal Reserve’s lead and match the severity of U.K. inflation.

No wonder markets were primed to question Britain’s policy credibility when Mr. Kwarteng unveiled the new tax plan.

On the bright side, at least we hopefully won’t hear much more about Modern Monetary Theory.

Addendum: I have ordered Edward Chancellor’s book, The Price of Time, and will review it when I get my copy. It is getting good reviews. We shall see!

Sterling is recovering a bit against the dollar. I wonder if some hedge fund types that have shorted the pound have been squeezed out.

Update: In response to bad polls and the fact that many Tory MPs are more or less social democrats with a blue label, the Chancellor has reversed his removal of the 45% top tax rate. So, combined with national insurance and other taxes, top earners face a marginal rate around 60 per cent, which is high even by European standards. Needless to say, this is unlikely to help the party retain power unless there is a dramatic improvement in the economy. And even if there is, the “it’s time for a change” will be hard to resist. Labour can get rid of its nuttier members and get into power.

21 comments to A week after Chancellor Kwasi Kwarteng went full “Reagan” in the House of Commons

  • Paul Marks

    The United Kingdom desperately needs to reduce government spending.

    Just about every Western nation desperately needs to reduce government spending.

    If we do not reduce government spending, all is lost.

    The Credit Bubble Corporate international economy is going to crash (that is inevitable now) – but we can make the crash less terrible, if we reduce government spending.

  • Paul Marks

    Modern Monetary Theory – increasing the amount of money and using it to buy stuff.

    It is about as “modern” as debasing the coinage.

    Although, talking of coinage, silver stopped being used in British coins in the 1940s and in the United States in the early 1960s – our money is totally debased.

    Till 1971 there was the fig leaf that (supposedly) the British government could demand gold for its Dollars from the American government – but Richard Nixon stripped off that fig leaf, and revealed that there were no sexual organs underneath it.

    Gordon Brown, a few years ago, sold off most of the British gold reserves – at less than a tenth of the current price of gold

    Less than a tenth of the current price of gold – which is about one thousand five hundred Pounds an ounce.

    Yet CNBC and the rest of the Corporate Media tell us that that the price of gold is crashing and that gold is a barbarous relic.

    Do the banks and other corporate entities actually have the “gold” they are trading down (via their various market manipulations)?

    If they really have this physical gold, will they please physically deliver it.

    I suspect their vaults are getting rather bare.

    Ditto the vaults of their American government “partners”.

    Let us have a full independent physical audit – just to put the minds of the public at rest.

  • Johnathan Pearce (London)

    Paul, what is interesting to me is that gold prices haven’t blasted higher in recent months. Look at this chart and then track different time periods.

    Gold can often be quite subdued when US interest rates are heading higher, as they are, because the attractions of holding the dollar vs other assets rise in relative terms. Gold is a form of “ballast” in a portfolio, a kind of insurance.

    If we are living in a world of rampant inflation, it is odd that bitcoin prices haven’t risen, but instead fell sharply this year. It trades more like a speculative technology stock than a currency that I would want to hold in any serious amount.

    The underlying problem is that more than 10 years of zero/negative interest rates have created zombie corporations, and as you know, much of the reason for the fashion around ESG investing, “woke” HR departments, and all the rest of this crap, is because real savings, and returns on investment, have been crushed. It will be interesting to see what happens to some of these ideological obsessions and fashions when companies have to focus on actually earning returns for their shareholders again. I hope there is a bonfire of this idiocy.

    A lot is riding on Mr Kwarteng and Ms Truss holding their nerve and keeping their jobs, even if it ends in the Tories losing the next GE. The irony is that a future Labour government would inherit a policy mix (higher rates, less absurd taxes) that we need. However, I see no appetite in the general public (apart from us zealots) for seriously rolling back public spending. The ideological roots of this madness go deep.

  • Talking of Gordon Brown, he also appears to be partially to blame for the gilt mess – according to Tim Worstall and knowledgeable commenter there

  • Paul Marks

    J.P. I think the Western gold markets are like the Western markets for so many things – manipulated by a few big players backed by the Central Banks. “Crony Capitalism” rather than a Free Market.

    However, reality can only be bucked for a certain length of time – eventually they will be asked to physically deliver all this “gold” they are selling. And I do not believe they have the physical gold to deliver. Indeed, people are already asking for physical delivery – and the gold is draining from their vaults. I wonder how much physical gold they really have left. People do not want their gold stored in the West (and they are wise not want it there – the American dominated financial system is dishonest to the core) – they want it physically with them, in India or wherever.

    As for the present Credit Bubble economy ….

    As you know Sir – the economy was never entirely straight, not even before 1914. There was always a lot of cheating at the margin.

    But we are way beyond that now – I am not sure there is much of an economy anymore, not when one strips out the Credit Money bubble.

    Still my friend Mr Ed reminds me that there is still quite a lot of good manufacturing in Britain – that I should not be too gloomy.

    As for the United States – Paul Krugman (“Nobel” Prize winning “economist”) says the American monetary and financial system is fine – because it is based on “men with guns”.

    “men with guns” – that is the basis of his economic ideas, the corrupt vermin who make up the FBI and-so-on.

    Greater economic, and moral, bankruptcy would be hard to imagine – if Paul Krugman is a real economist, and if his American Credit Bubble system makes any real sense, then I am Gandalf the Grey.

  • Paul Marks

    Yes JP – when American interest rates go up people go into Dollars, selling gold to do so.

    But American interest rates cannot go up to anything like the level they need to, not without totally destroying the financed of the American government and the big Corporations.

    The mistake, the very great mistake, of Peter Schiff since 2008 is that he keeps predicting what the American government will do – based on the assumption that they want to restore economic sanity (I am not sneering at Peter Schiff – I made the same mistake).

    Peter Schiff failed to grasp that the powers-that-be are totally dependent on the Credit Bubble economy – they are it, and it is them.

    They cannot survive without it. They would have us all eating grass (or trying to) rather than give it up.

    I think Peter Schiff, and others, finally understand this now.

  • Alex

    But we are way beyond that now – I am not sure there is much of an economy anymore, not when one strips out the Credit Money bubble.

    There is, in the sense that goods are still being delivered to the stores. These come from somewhere, they aren’t magicked into existence like the funny money used to pay for them. In a very real sense the Western world has been playing an increasingly dangerous game with the rest of the world these past 20 or 30 years, particularly so in the last decade. We pay for real stuff made by human hands and ingenuity in Taiwan, Korea, Bangladesh, China and India with funny money backed by strange assets like overpriced housing in Central London. When push comes to shove a house is a house is a house, whether a nice house or a shed it matters only in minor degrees above the utility value of a roof over your head and security from common bandits, it certainly seems a strange exchange to exchange millions in money acquired from selling wealth produced by human labour for a Georgian terraced house in Belgravia that you don’t even live in.

    Most people here seem to be globalists, which is fair enough – I believe in free trade too. But whether it is really safe to outsource everything we’re about to find out, I suspect. I work in the service sector myself and I know that when there’s a recession my skills are not in demand, I found that out the hard way in the 2008 recession.

  • Alan Peakall

    JP: The irony is that a future Labour government would inherit a policy mix … that we need – I wouldn’t think anticipate their writing a thank-you letter this time round, either.

  • Speaking as a former futures trader, I keep asking people telling me that Sterling had been “destroyed” to put their mouth was and go short for a month 😀

  • Patrick Crozier

    I had been wondering why a pension fund might have a margin call and now thanks to Francis T, I know. Cherchez l’etat.

  • Steven R

    I just watched an interview with Nigel Farage on more or less this topic.


    I don’t know how it is on your side of The Pond, but in the US there will never be any real domestic budget cuts simply because vast majority of the budget goes to entitlement spending (primarily for Social Security and Medicare/Medicaid) and no one who wants reelected will touch that.

    The Danegeld still exists, but instead of Viking raids, we’ll get an upset public that primaries out a politician that dares tell poor or old Americans to tighten their belts a bit because we’re broke.

  • Stuart Noyes

    I despair of the idiots who think low taxation is the bee all and end all. All the while government debt rises. Serious cuts in spending need to happen. The howls of austerity need to be blown away by arguments of small government. Cuts in taxation without cuts in spending just builds debt future generations have to deal with if we’re lucky.

  • Zerren Yeoville

    Steven R – September 30, 2022 at 5:39 pm: “I don’t know how it is on your side of The Pond, but in the US there will never be any real domestic budget cuts simply because vast majority of the budget goes to entitlement spending (primarily for Social Security and Medicare/Medicaid) and no one who wants reelected will touch that.”

    That probably goes double or treble in the UK, thanks to the existence of the National Health Service (NHS), which, despite treating people seeking medical attention as nuisances to be discouraged if at all possible, retains the obeisance of the majority of the population for whom it has largely replaced God as an object of worship. Many remain convinced that the NHS is somehow the ‘envy of the world’ despite the fact that after 70 years of existence no other country has copied the model.

    I do get it, partially. No-one wants to be worried about whether or not their private medical insurance is up to date if they have to dial for an ambulance in a life-threatening emergency, or meeting the cost from their own pockets if the genetic lottery means that their kid is one of two dozen in the whole world to have a rare syndrome only kept in check by a monthly injection that costs $100,000 a dose. But there has to be a better way of taking care of people in these situations which doesn’t involve a statist behemoth that seems to consider its main reason for existence is to provide well-paid sinecures for left-wing professionals instead of actually providing medical care to those who pay for its ‘free at the point of delivery’ services through their taxes.

  • lucklucky

    Too many people and companies are dependent on taxes that the State collects. Legions of Labour voters in QUANGOS and Education Political Complex and other institutions… since those voters have voice in BBC and Media is what legitimates or not political violence, Police allows those voters to make political violence – see the Extinction rebellion or Floyd riots – so there is nothing much you can do to reduce state spending.
    For tax cuts and a nimble state to work you need to change the culture of dependency.

  • Roué le Jour

    A good old fashioned military coup will do the job, but Britain doesn’t have those Rayban and Rolex generalissimos like the more sultry climes.

    Also, a thing that can’t go on forever won’t, as the man said.

  • Paul Marks

    To survive the United Kingdom and other Western nations have to dramatically roll back government spending, restore to Civil Society (to individual human beings and voluntary, and self-financing, associations) many of the functions it (the state) has usurped.

    And, to survive, the United Kingdom and other Western nations must restore sound money (money that actually is something – not just the whims of the state and its pet bankers) and finance that is based on Real Savings (the actual sacrifice of consumption) – not credit expansion.

    I often criticise such thinkers as Thomas Hobbes, David Hume, James and John Stuart Mill on philosophical matters – but they would agree on what we need to do economically.

    What we in the Western World need to do economically (and culturally) if we wish to survive as functioning societies.

    Whether we will actually choose to survive, remains to be seen.

  • Paul Marks

    My reply to two arguments – one from evil people, the other from a good person.

    The Economist magazine has rejected the budget – and demanded that the income tax cut be “cancelled”. Why specifically the reduction of income tax from 45% to 40% to be cancelled? Because (although the vile people of the Economist magazine do not say this) – it violates the international tax cartel, the unofficial rule that the top rate of income tax here, should not be lower than local, State and Federal income tax (combined) in the major American centres. And that business taxation should be much lower – instead the Economist magazine suggests corrupt tax subsidies for certain forms of investment (read the “Green” scam) and higher (yes higher) inheritance taxes – to destroy individual family-owned business and hand over everything to the “Woke” international corporations.

    The Economist magazine is controlled by evil people – that is obvious, and has been for years, to anyone has not be lobotomized (what on Earth is this magazine in the reception of the Institute of Economic Affairs?). But there was also a good man who made an argument today – an argument that deserves answer.

    The historian Neil Oliver.

    In his G.B. News monologue from Stirling in Scotland (yet another rail strike prevented him from getting to London – W.H. Hutt was correct about the GOVERNMENT BSCKED insanity that is “Collective Bargaining” in the “Strike Threat System”) Neil Oliber correctly showed what a horrible fraud both fiat money and Credit Bubble banking is – and how that fraud has got worse and worse over time.

    In an effort to refute Neil Oliver a financial journalist went on about how without debt-money (credit) “there would be no investment” (as if there had never been such a thing in history as REAL SAVINGS – the actual sacrifice of investment) – both fiat money and Credit Bubble finance have indeed got madder and madder over time and were indeed based on bad principles.

    However, the alternative suggested by Neil Oliver is wrong – “Sovereign Money” is just as much “money from nothing” as money created by corrupt bankers. And “backed by the wealth of the nation” are empty words, as empty as the “backing” for the American “not worth a Continental” of the War of Independence, or the “Assignat” of the French Revolution – supposedly “backed” by lands stolen from the Catholic Church and others.

    If you want commodity money – then say so.

    Do not fear being called a “Reactionary” – you will learn that there is nothing bad in being a “Reactionary”.

    As for the Bitcoin people – well I made a fool of myself, quite some time ago, arguing against Bitcoin – if you want to go down the Bitcoin road, well it does not personally appeal to me, but if other people like it – that is fine.

  • Paul Marks

    A cut in the top rate of income tax from 45% to 40$ to be cancelled – a U turn that would bring down the government, over a tax cut that (most likely) will mean more (rather than less) revenue than would otherwise be the case.

    But not a word in opposition to the utterly failed “lockdown” policy (all the countries that did not lockdown had a lower death rate than we did) and the 500 Billion Pounds created (from nothing) to finance it. And not a word about the toxic injections, or the smearing of Early Treatment of Covid 19 (so many lives could have been saved had Early Treatment had not been smeared by the Collectivist establishment) – and not a word in condemnation of the rigged American Election of 2020 (just endless smearing of the people who tried to bring the truth to the people).

    The Economist magazine crowd really are scum – evil scum.

    No doubt their reaction to the FBI (those criminal thugs – who are very brave, as long as they have battle armour and rifles, and those they persecute do not) raiding safe deposit boxes (with no proof of criminality) and taking vast sums of money and valuables (again without with any proof that they were the proceeds of crime) would be to shrug. People should not have cash anyway – everything should be just lights on the computer screens of governments and bankers, so that ordinary people can have their faces ground into the dirt. Reduced to serfdom in all but name.

    It is fine for other people to be robbed, or even for other people to be murdered – as long as it is not the Corporate crowd – is that not your position Economist magazine types?

  • Martin

    The Economist magazine crowd really are scum – evil scum

    I vaguely recall Marx referred to the Economist as representing ‘the aristocracy of finance’. One hardly has to be a Marxist to concede he was right about this, and that the description of it seems more apt now than it did in the 1850s.

    As a student in the early 2000s I did subscribe to it for a time but eventually realised I didn’t wish to continue paying to read article after article simping for Blairism, Obama (I think I remember they had a cover with Obama and McCain on saying ‘America at its best’, which I found moronic even at the time) , the EU, bank bailouts, and every rotten manifestation of ‘internationalism’. I noticed just recently it was backing the Socialists in Brazil over Bolsonaro, which told me nothing has changed about the magazine in the 12-13 years I haven’t bothered to read it.

  • John

    After tasting blood with partygate the media and their puppet masters have rapidly settled on the 45% cut as their weapon of choice to bring down the government.

    Throw in a few more carefully coordinated public sector strikes and they might get their wish courtesy of a few dozen squishy remainer MPs who bask in the satisfaction of knowing that they alone are truly in touch with the will of the people.

  • Paul Marks

    We are now told that the top rate of income tax in the United Kingdom will remain at 45%.

    The international establishment (“Finance Capitalism” or whatever one wants to call them) have got their wish Martin. The unofficial tax cartel will be maintained – the top rate of income tax in the United Kingdom will be the same as it is France.

    Yes John – I suspect that the strikes and the international establishment are singing from the same hymn sheet as the Marxist led strikes – at least for the moment.

    The “markets” have “reacted positively to the change” – which shows us (yet again) that “the markets” are dominated by a handful of vast corporate players who are backed by the Central Banks.