Kwarteng's Incompetence Costs us Dear.
"Time to wrap up, after the most turbulent market reaction to a fiscal event that I can remember.
Investors are reeling from Kwasi Kwarteng’s package of huge unfunded tax cuts, and spending pledges such as the energy price freeze. The pound is languishing at just $1.09 tonight, a 37-year low, and 3.5 cents lighter than yesterday, while UK government bonds have had a shocking day. The yield, or interest rate, on two-year gilts close to 4% tonight, the highest since 2008, on fears over the huge borrowing ahead."
Where do I start? We all knew the sad demise of the long-serving Queen Elizabeth, coming at the same time as a change in Prime Minister and Cabinet - though not the ruling political party - marked the end of a political era and the start of a new one. But could anyone have predicted how current economic circumstances could interact with government policy, to create the perfect storm we are now witnessing, of which the rate of inflation, the base lending rate, borrowing, national debt and exchange rate with other currencies - notably the dollar - have all reached high and low peaks in decidedly the wrong direction?
GB Pound / US Dollar Exchange Rate.
Having been effectively in control of economic policy and the British Treasury since 2010, it is understandable that the old excuse of blaming the Opposition for the mess they left behind has lost it's rhetorical power. Only the Conservatives can claim responsibility for the current economic circumstances, produced by twelve years of indecision and incompetence under now four different Prime Ministers (Cameron. May. Johnson. Truss) and six Chancellors of Exchequer (Osborne. Hammond. Javid. Sunak. Zahawi. Kwarteng) The fact that Labour, Scottish Nationalists, Liberals or Unions cannot be blamed for the current situation means the Spin Doctors must look to other causes, whilst careful not to choose one that the government is not responsible for. This is proving rather difficult.
The policy of restraint pursued by Cameron and his mate Osborne, cutting back on expenditure on Local Government, the NHS, the Police and armed services merely built up pressures that now have to be addressed. Following the 'Green Agenda' despite the paucity of its global impact, including dependence on other nations for energy and the closing down of our own, had a direct effect on resilience and energy prices which has now gone ballistic. Privatising essential services to foreign providers has increased costs to the consumer, whilst profits have gone abroad.
At the same time crazy, irrational spending took place on vanity schemes such as two aircraft carriers, a new high speed railway and the corona virus panic (to name but three) all of which have plunged the country into unsustainable debt, which current policies can only worsen. How many billions were and are paid to the EU in blackmail payments? How many billions were and are being wasted on a new railway which will do virtually nothing for journey times. How many billions were wasted on bombing Libya, Syria and Afghanistan. How many billions (over 400!) were wasted on pointless Covid schemes? How much is currently being poured into the war in Ukraine, largely provoked by Western foreign policy? What a catalogue of disasters resulting from twisted priorities and outdated notions of our role in the world, of which sad to say the Queen's funeral was the apogee.
What is the result of all this? An unprecedented level of national debt, whilst most of the nation real estate assets, the famous 'family silver', have been sold off so there is little to back it up. Meanwhile the independent Bank of England is forced to raise the interest rate as the classic control of raging inflation (largely caused by energy prices but compounded by other factors) which has a direct effect on cost of living (most people having loans to service) and on other costs. The strange thing is the BoE and Treasury are engaged in an economic tug of war, in which the Government claims it is going for growth with a target of 2.5 % whilst the bank's interest rises, and they are likely to go higher, directly stifle it. The borrowing costs to lenders have been mentioned, but so too will the repayment costs of servicing the enormous government debt rise to many billions of pounds annually. This disparity can only be paid for by increased taxes or increased debt. Truss and Kwarteng have gone for the latter. It can only be described as brinkmanship of the highest order by complete novices in the field. It is as if the Bank Manager is high on drugs or the drug pusher has taken over the supermarket.
International investors have made their assessment and the pound against the dollar has dropped to an all time low. We all remember Harold Wilson's disingenuous assertion that a devalued currency didn't mean the pound in your pocket was worth less. That fallacy has long since been disproven and no one would dare propose it today. Not only will the pound buy you less abroad, it has a direct impact on the cost of living and inflation - effectively how much a pound will buy you at home. Oil is priced in dollars which means an extra five pounds to fill the tank and more for all energy cost where oil is a factor.
Everything imported, and Britain is an importing nation is more expensive in proportion to the fall. If inflation runs at 10% not only are basic living costs more expensive by that amount, but labour costs for manufacturing and retail are increased, whilst savings if any are also decreased in proportion. So if you are lucky enough £100.000 in the bank at the beginning of the year, you will have effectively lost £10,000 at the end of it, just to inflation. Meanwhile any investments in stocks and shares will have probably depleted by even more. Yet what is the Truss/ Kwarteng solution to all this? Allowing the highest paid bankers and executives to keep more from money making opportunities denied the generality of the public?
One of Kwarteng's first actions was to sack his highly experienced Permanent Secretary in the Treasury, Sir Tom Scholar. Within 48 hours, Kwarteng was calling for a change in leadership and Scholar had to go with immediate effect. Was this gesture politics or a tyrannical Kwarteng wishing to assert his authority and put the fear of god into everyone else, bending them to his reckless will? There are reasons to question whether Kwarteng is quite all there if his demeanour in the House and at the Queen's funeral are anything to go by. Perhaps he has been taking happy pills, because nothing in his novel policies or the almost uniform and international response to them, would support much elation or glee.
https://www.youtube.com/watch?v=dSCqqWhx044
https://www.independent.co.uk/tv/news/mini-budget-kwasi-kwarteng-reaction-b2174477.html
https://www.youtube.com/watch?v=i8CQXwEYwKA
"Bold experiment or reckless gamble?" https://www.youtube.com/watch?v=_Poxa3k8qVE&lc=UgwpT_tjKAecaAAs4dB4AaABAg.9gKJkeF0NIE9gQZBHYIcLx
In reply to Russell Brand: Is it a paradox? The difference between a contradiction and a paradox is that in the former, the statement is logically inconsistent and irreconcilable; in the latter that it only appears so. The end of the covid pandemic (however true or false that assertion may be) and a fall in big pharma profits, is not a paradox but a rational consequence of reduced sales of an admittedly ineffective and positively dangerous, product the western world was persuaded, by a confluence of factors, to believe was a good, necessary and even obligatory thing. It may even have ensured the demise of the Queen and her Consort, and certainly, although indirectly, caused a change of Prime Minister and Cabinet! So not a paradox but a rational inevitability.
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