Macroeconomics, the economy, inflation etc. *likely to be very dull*

wallace_and_gromit

rick_chasey said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

I disagree. If you have an independent central bank, the direction they're doing their monetary policy ought to inform what you can and can't do.

I think this relies on the government being competent in terms of the numbers "adding up" though, and so doesn't currently apply. In the Osborne and Hammond eras, one could argue about the policy, but the policy was generally "fully costed" (or whatever the term is). Sunak is harder to judge after the Covid-era spending, but he was also towards the "balance the books based on coherent logic" end of the specturm rather than the Kwarteng "It will be fine. Trust me" approach.

TheBigBean

wallace_and_gromit said:

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

That's one of the reasons but clearly not the only reason. Growth is currently expected to be low yet interest rates are expected to rise sharply.

Growth is high. Inflation is higher.

pblakeney

TheBigBean said:

wallace_and_gromit said:

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

That's one of the reasons but clearly not the only reason. Growth is currently expected to be low yet interest rates are expected to rise sharply.

Growth is high. Inflation is higher.

Is it? BoE is saying recession.

TheBigBean

pblakeney said:

TheBigBean said:

wallace_and_gromit said:

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

That's one of the reasons but clearly not the only reason. Growth is currently expected to be low yet interest rates are expected to rise sharply.

Growth is high. Inflation is higher.

Is it? BoE is saying recession.

Yes because inflation is higher than growth, so real growth is negative.

pblakeney

TheBigBean said:

pblakeney said:

TheBigBean said:

wallace_and_gromit said:

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

That's one of the reasons but clearly not the only reason. Growth is currently expected to be low yet interest rates are expected to rise sharply.

Growth is high. Inflation is higher.

Is it? BoE is saying recession.

Yes because inflation is higher than growth, so real growth is negative.

Figures will be clearer next week.

wallace_and_gromit

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

Implicit in this though is the expectation that the government wasn't going to throw fiscal responsibility out of the window, trash the exchange and increase borrowing costs.

pblakeney

"The Bank of England says it won't hesitate to raise interest rates by as much as needed to return inflation to the 2% target."

"Meanwhile, the Treasury has confirmed it will set out a medium-term fiscal plan on 23 November - seen as a bid to calm the markets."

Surely an admission that they royally fuckedit up last week.

rick_chasey

wallace_and_gromit said:

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

Implicit in this though is the expectation that the government wasn't going to throw fiscal responsibility out of the window, trash the exchange and increase borrowing costs.

Correct.

You need to think of the context of the splurge. It's not a big splurge on investment. It's just demand side stuff in a period of 8-10% inflation.

It's nuts. All it means is the BoE needs to raise rates even further on an economy where because of house prices people have got massive mortgages (or the other way around, either way, there is a huge amount of private debt hanging around)

wallace_and_gromit

Deleted - Duplicate

Jezyboy

pblakeney said:

"The Bank of England says it won't hesitate to raise interest rates by as much as needed to return inflation to the 2% target."

"Meanwhile, the Treasury has confirmed it will set out a medium-term fiscal plan on 23 November - seen as a bid to calm the markets."

Surely an admission that they royally fuckedit up last week.

That seems quite a way off to me?

surrey_commuter

pblakeney said:

"The Bank of England says it won't hesitate to raise interest rates by as much as needed to return inflation to the 2% target."

"Meanwhile, the Treasury has confirmed it will set out a medium-term fiscal plan on 23 November - seen as a bid to calm the markets."

Surely an admission that they royally fuckedit up last week.

to me that is saying that the markets will get over it and forget all about it by the end of the week.

rightly or wrongly they may think parity is as bad as it can get

rick_chasey

It is worth remembering he's a Brexiter, so trashing the economy to push his political ends is not new to him.

briantrumpet

The Telegraph is certainly getting more than a little twitchy about both the economy and the Tories fate... who could have foreseen that a party drunk on its 80-seat majority (has anyone mentioned that lately), and that silenced any criticism of Brexit and promoted those who cheered the lies on the Brexit bus the loudest, would end up being a party of incompetent buffoons who'd trash both the party's reputation and the country's finances? 🤔

TheBigBean

wallace_and_gromit said:

TheBigBean said:

wallace_and_gromit said:

rick_chasey said:

I'm very much a "listen to what the market is telling you" approach. i.e. borrow when it's cheap, don't when you don't.

There's a certain circularity though. One of the reasons UK borrowing costs were relatively low until recently was that the UK government was assumed to to fiscally competent. If the UK had gone on a borrowing splurge because borrowing costs were low then borrowing costs would have increased if investors decided that the government was no longer fiscally competent. The hit to the £ exchange rate overnight came because of comments that Kwarteng has made about future tax cuts, which damaged his credibility even further, not because of anything he'd actually done.

The rates were low because the market expected interest rates to remain low reflecting a period of low growth.

Implicit in this though is the expectation that the government wasn't going to throw fiscal responsibility out of the window, trash the exchange and increase borrowing costs.

That's reflected in today's FX rates unless you think the UK may default on its debts (no one does).

See carry trade for more info.

focuszing723

Well fuckitydoodar that's some kind of meteoric rise without any substantial correction!

What's going to happen to Homes to Live in prices?

Is Demand still strong enough to keep them buoyant? Or, with escalating Mortgage/Debt servicing costs are we looking at a correction?

pblakeney

Jezyboy said:

pblakeney said:

"The Bank of England says it won't hesitate to raise interest rates by as much as needed to return inflation to the 2% target."

"Meanwhile, the Treasury has confirmed it will set out a medium-term fiscal plan on 23 November - seen as a bid to calm the markets."

Surely an admission that they royally fuckedit up last week.

That seems quite a way off to me?

Next Treasury fiscal plan wasn't due until April.
BoE was November. Could still be this week.

focuszing723

focuszing723

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

briantrumpet

Even the Telegraph is now getting a bit Cakestoppish.

https://www.telegraph.co.uk/business/2022/09/27/doomster-rishi-sunak-right-trussonomics/

“The Government appears to believe that, contrary to empirical evidence, the tax cuts will provide a large boost to GDP growth and will ultimately pay for themselves,” says Andrew Goodwin, the chief UK Economist at Oxford Economics. “Markets don't believe it.”

That’s understandable: really, how many new companies are going to be set up in the UK or rich individuals move here because the 45p top tax rate has been reduced to 40p?

Then there’s the timing. Over £45bn of tax cuts would be a lot at the best of times but they are coming on top of an energy price guarantee for households that could cost about £60bn over the next six months alone, and another £60bn to reduce the energy bills of businesses.

The markets were relatively relaxed about the Government’s plans to borrow more for these emergency measures. They hoped it would help to keep bills down and suppress inflation, meaning interest rates wouldn’t rise as high and thus, the government’s debt repayments wouldn’t get out of hand.

Now the markets are worried that tax cuts might boost demand and feed inflation just as the Bank is fighting to suppress it. The result has been a fall in sterling, which results in an increase in the cost of imports (including some energy) which will likely exacerbate inflationary pressures. Hope of a virtuous circle has been replaced by fears of a vicious cycle.

kingstongraham

The cut to NI had also already been announced weeks ago, so that can't have caused the immediate jitters on Friday. It was the insistence on cutting tax income with no thought to any potential consequences that came as a surprise.

Additionally, by making the largest cuts in the first announcement on the tax of the highest earners, it showed that politically, they are incompetent.

briantrumpet

kingstongraham said:

The cut to NI had also already been announced weeks ago, so that can't have caused the immediate jitters on Friday. It was the insistence on cutting tax income with no thought to any potential consequences that came as a surprise.

Additionally, by making the largest cuts in the first announcement on the tax of the highest earners, it showed that politically, they are incompetent.

And then, announcing the next set of cuts while the evidence of the effect of the first tranche was before their very eyes. It's Brexit all over, thinking that dogma will overcome reality, if you just believe it hard enough.

kingstongraham

briantrumpet said:

kingstongraham said:

The cut to NI had also already been announced weeks ago, so that can't have caused the immediate jitters on Friday. It was the insistence on cutting tax income with no thought to any potential consequences that came as a surprise.

Additionally, by making the largest cuts in the first announcement on the tax of the highest earners, it showed that politically, they are incompetent.

And then, announcing the next set of cuts while the evidence of the effect of the first tranche was before their very eyes. It's Brexit all over, thinking that dogma will overcome reality, if you just believe it hard enough.

There's an interesting article in The Times today, which (in short) says that even if they are right, and the orthodoxy is wrong, they won't succeed if they go full on against it without providing any evidence or justification - because the markets as a whole by definition believe the orthodoxy and will need persuading otherwise.

surrey_commuter

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

TheBigBean

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

surrey_commuter

TheBigBean said:

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

I was thinking of not creating a crisis

TheBigBean

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

I was thinking of not creating a crisis

Yes, that was the economic dream that culminated in the GFC. Back in the real world crises happen. Sometimes they are even self-imposed.

pblakeney

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

I was thinking of not creating a crisis

Could be too late for that.
Mitigating is where we are.

surrey_commuter

TheBigBean said:

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

I was thinking of not creating a crisis

Yes, that was the economic dream that culminated in the GFC. Back in the real world crises happen. Sometimes they are even self-imposed.

I would count GFC as a market (or regulatory) failure rather than one of economic/financial orthodoxy

TheBigBean

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

I was thinking of not creating a crisis

Yes, that was the economic dream that culminated in the GFC. Back in the real world crises happen. Sometimes they are even self-imposed.

I would count GFC as a market (or regulatory) failure rather than one of economic/financial orthodoxy

One and the same to me. The market and regulation failed because economists had solved the problem - there would be no more busts. As a result people didn't need to worry about risk in the same way which led to the collective failure.

surrey_commuter

TheBigBean said:

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

TheBigBean said:

surrey_commuter said:

focuszing723 said:

I still cannot believe the naivety/stupidity of the vast majority of economic/financial so say experts.

I give up. I'm willing to give Mars a try, beam me up Scotty.

can you elaborate?

To me economic/financial orthodoxy has been proved on the money with Brexit and now this.

You will always find an outlier trying to sell a book or get on TV but that would be like condemning all scientists because some deny climate change

Isn't it rewritten after every crisis?

I was thinking of not creating a crisis

Yes, that was the economic dream that culminated in the GFC. Back in the real world crises happen. Sometimes they are even self-imposed.

I would count GFC as a market (or regulatory) failure rather than one of economic/financial orthodoxy

One and the same to me. The market and regulation failed because economists had solved the problem - there would be no more busts. As a result people didn't need to worry about risk in the same way which led to the collective failure.

And whilst it was a very expensive lesson at least people learned that they should not rely on growth devaluing debt and to budget for rate rise over the duration of long term debt