POLITICS CORNER

[plaques]

If Peter's clip from the BBC economist is anywhere near the truth the OBR might give us an anchor point and yes, it might signal the need for a U Turn.

With Truss trying to emulate Thatcher Remember U-turn if you want but this Ladies not for turning. Unfortunately with a poll rating 17 points behind Labour 'summat alafta' to be done. Before doing a u-turn the first thing is to find someone to blame. The favorites so far are. International money markets for not understanding how money works. The Bond market for following supply and demand principles, the UK is desperate for loans so put the price up. The BoE for suggesting putting interest rates up reducing the money supply affecting OUR voters through mortgages. The IMF bunch of foreigners who don't want to lend us money. Keir Starmer for suggesting a plausible alternative to trickle down. Of course Liz Truss can't be seen to have got it wrong or even sacking her Chancellor which would amount to the same incompetence accusation. Kwasi Kwarteng will have to fall on his sword. A sort of Hari Kwasi you may say. The Conservative party can't afford another change of leader so either they trim their policy but still claim its against Conservative principles but like the Terminator " I shall return". or accept its goodbye from me and its goodbye from him and another 150 Conservative seats.

[Tizer]

Two good posts there, bang on target! And now The Mogg is in the cross hairs too...perhaps he'll be hit by his own silver bullet?
`Study contradicts Rees-Mogg over hydrogen for heating' LINK
`A new study has cast doubt on government claims that hydrogen could be used to heat homes and so cut greenhouse gas emissions. The report, published in the journal Joule, analysed more than 30 studies that looked at hydrogen and heating. All those studies found that hydrogen was much less efficient and more costly than alternatives like heat pumps. Last week the Business Secretary Jacob Rees-Mogg told the Commons that hydrogen was a "silver bullet".....
`"Using hydrogen for heating may sound attractive at first glance," says Jan Rosenow the report's author and Europe Director at the energy think-tank the Regulatory Assistance Project. "However, all of the independent research on this topic comes to the same conclusion: heating with hydrogen is a lot less efficient and more expensive than alternatives such as heat pumps, district heating and solar thermal," he said.'...
`"In the UK, heating homes with green hydrogen would use approximately six times more renewable electricity than heat pumps," says David Cebon of the Hydrogen Science Coalition and Professor of Mechanical Engineering in Cambridge University. "We do not have the time or resources to waste further investigating hydrogen's role in home heating, especially when the well-known laws of thermodynamics determine the answer," he said.'....

[Stanley]

Many years ago, a senior civil servant who was working in the Welsh administration when John Redwood (as he was then) was Welsh Secretary told me that the man was dangerous and should be watched. He reckoned he was mentally unstable.
He supported the Truss candidature and this morning I heard him saying that she should ignore the IMF:
"So the IMF and some big foreign investment banks and funds do not want the UK to be more competitive with lower taxes. I do not recall them offering advice against the global policies which brought on the inflation which has so disrupted living standards."
There is more on Twitter, but that'll do as an example of the quality of advice Truss is getting.

[Whyperion]

Many years ago, a senior civil servant who was working in the Welsh administration when John Redwood (as he was then) was Welsh Secretary told me that the man was dangerous and should be watched. He reckoned he was mentally unstable.
He supported the Truss candidature and this morning I heard him saying that she should ignore the IMF:
"So the IMF and some big foreign investment banks and funds do not want the UK to be more competitive with lower taxes. I do not recall them offering advice against the global policies which brought on the inflation which has so disrupted living standards."
There is more on Twitter, but that'll do as an example of the quality of advice Truss is getting.

He is possibly right, I do not recall the IMF being reported as noting that Quantitative Easing and covid-bounceback/support were policies that would lead to (capital asset) and demand pull inflation. along with , argueably, increased costs from leaving some trading unions. I ignore the energy displacement from Russian activity as that element of inflation could hardly be called a generalised world policy, and note the trade displacement still in place as a result of chinese covid restrictions/global shipping. I dont recall Redwood being vocal against those policies either though.

[plaques]

Quantitative easing is one of those bits of banking smoke and mirrors that I don't understand. The BoE creates some digital money that doesn't exists to buy bonds it doesn't own to give to private banks which will use them as assets to lend money to reduce debt on money they have lent out to businesses who will never be in a position to pay it back so that things can continue as normal as though nothing had happened in the first place. Simple really.
What we do know is that over the years the BoE have created round £850 Billion of this funny money and were just about to start to reel it in when Kwasi Kwarteng comes along and buggers up the whole money system resulting in the BoE having to start again by adding another £68 Billion to this pile. By some magic alchemy this is seen as a stabilising influence to calm the markets. In truth unless this funny money can be paid back without causing too many waves it will add to inflation setting the merry go round on its way again. The only real hope it that there is a massive U-turn where the Conservative party see sense and get kamikaze Kwasi to drop this nonsense.

[Stanley]

Ken, your first para describing QE shows you understand it better than I do. My only take on it is that it's like pouring hot water into a teapot to get more cups of tea out. It works but the tea gets weaker.... for cups of teas read the pound in your pocket....
There's only one thing to do, go out and spend it all before it won't buy anything!
Talking about politics, where are the PM and the Chancellor? Surely not at home putting their feet up and writing their conference speeches? Wouldn't you think this would be a good time for them to be speaking to us?

[plaques]

Liz Truss goes into hiding and Kwasi Kwarteng doubles down on his tax breaks both BELIEVE its the right thing to do. It looks like the BoE has proposed the quantitative easing to give Liz Truss some time to change her mind. November 23rd it the dead line and then its interest rate hikes possible touching 6%. That's mortgage default territory and repossessions. From what I read the world thinks the UK has gone mad. See this 2 min YouTube from Yanis Varoufakis. Liz Truss has until the Tory Party conference to convince the faithful that they shouldn't dress her up in a tank commanders outfit and send her to Ukraine, That is if they will have her.

[Tizer]

...Talking about politics, where are the PM and the Chancellor? Surely not at home putting their feet up and writing their conference speeches? Wouldn't you think this would be a good time for them to be speaking to us?

A BBC article says `All the main opposition parties - including Labour, Liberal Democrats, Green Party and Plaid Cymru - have now called for Parliament to be recalled early.' Am I right in thinking that can only happen if the Government chooses to recall? It ought to depend on the outcome of a vote by all MPs.

[plaques]

I'm sorry to have to say this but the answer to 'Is Liz Truss's budget working? the answer is undoubtedly 'YES'.
First it gives the rich an immediate rise by not paying taxes.
The government then has to borrow money to make up the shortfall. Unless reserves are available which patently they are not: this is normally done by issuing bonds for a fixed amount over a fixed period at a low but safe interest rate. Pension funds buy these bonds because they are safe and are happy to accept the interim interest payments.
Should the government flood the market with bonds creating some doubt if they will be paid back the interest rate will increase in line with the perceived risk. Not telling people the financial study behind their moves is enough to unsettle the markets,
The rich people who now have money to spare: loan this extra money that they have been given back to the government and get interest on it.
Should this wheeler dealing create too much inflation the BoE will invent more money to create bonds to sell to the rich etc etc. The pension funds are now in trouble because the end value and interim interest through inflation isn't sufficient to cover the pension payments.
Inevitably the BoE cannot continue to create money out of nothing so they put up the cost of borrowing which falls on those at the bottom as mortgages and business loans.
The rich are out of this last loop because their money is secured by government bonds.
So is Liz Truss's strategy working. Yes if you are rich to start with.

[Stanley]

I note the Truss stance, no turning back, she is committed to tax cuts and the trickle down theory.
Is it working? As you say Ken, it depends on how big your bank balance is.
Will it work and grow the economy? Like Ken Clarke, I am deeply sceptical but I wish her well because the course she has chosen governs the comfort of our future. However, if she and Quasi are right, every other economist of repute is wrong and history teaches that it has never worked before. On balance, I have better grounds for thinking she is wrong than she has for being sure she is right.
See THIS BBC account of Mark Carney's intervention yesterday. Now there's a man I trust and his opinion is worth listening to.
"Speaking to the BBC's Today programme, Mr Carney said that while the government was right to want to boost economic growth: "There is a lag between today and when that growth might come." He said: "There was an undercutting of some of the institutions that underpin the overall approach - so not having an OBR forecast is much-commented upon and the government, I think, has accepted the need for that but that was important.""
He's being very moderate with his public pronouncement but I think it's clear he wouldn't have advised doing it.
The BofE will continue to pour our money (almost £70billion so far) into the market to protect Truss but that can't go on forever. I foresee a very bad tempered Tory conference.....

[Stanley]

News that Truss will meet the OBR today in an effort to calm the markets.
It's also been announced that she intends to go to Prague next week to join in discussions with President Macrons new European group. Surely she ought to be at home minding the shop?
Looking at her round of interviews with local radio yesterday the papers are brutal. See THIS Guardian account which gives the flavour. This is a car crash.......

[Big Kev]

The media are reporting the economy has grown by 0.2%.
https://www.bbc.co.uk/news/business-63086562

[Stanley]

That's within the margin of error for the calculation Kev.
I've just been listening to a bloke called Andrew Griffith, Treasury minister telling us that everything is fine. I don't believe a word he says.....

[Whyperion]

The media are reporting the economy has grown by 0.2%.
https://www.bbc.co.uk/news/business-63086562

Seems more complex than the headline , and Stanley error margin note.
"The UK's economy grew in the second quarter of this year, contrary to an initial reading which said it had shrunk, revised official data suggests.
Economic output rose by 0.2% between April and June
However, the economy is still smaller than it was before the Covid pandemic.
This is because the new ONS figures show the impact of Covid on the economy was more severe than previously thought, and it had shrunk by more than estimated in the first few months of the pandemic.
As a result, the ONS said the economy was still 0.2% smaller than pre-pandemic levels, whereas it had said previously it was 0.6% bigger.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The downturn in economic activity during 2020 looks even worse than previously thought, and the subsequent recovery even weaker, following the latest set of national accounts revisions."
He said these new figures would compel the Office for Budget Responsibility (OBR) to further revise down its estimates for future potential GDP.""


I am not sure that the future potential GDP is totally influenced by past economic inactivity - There seems to be some reluctance to do things like run railways, invest in health care outcomes, fund schools. Construction continues to eat land and materials. There is a lot of stuff stuck in the docks and brexit difficulties that the OBR seem unable to quantify.

So basically the April-June is up, because previous quarters' figures have been revised down.

[plaques]

The media are reporting the economy has grown by 0.2%.
https://www.bbc.co.uk/news/business-63086562

I read something similar from the Financial Times. The £ has bounced back....Well a £65Billion bung to the pension funds et al has done what they hoped it would do. No mention that people are accepting that Truss's plan is working where GDP and growth has morphed into 'medium and long term'. Whatever that means. Chris Philip said that the budget was Ok because initially it was endorsed by business. That was that then I wonder what they are thinking now with many looking at bankruptcy.
I mentioned in a previous post that the definition of a recession has been changed from two quarters being below the previous quarters. etc. Its now what they think is a recession. If the BoE think we are in a recession who am I to argue.

[Stanley]

In short, goalposts are being moved to cater for the Kwarteng/Truss school of economics.

[Tizer]

This was the front page of the `i' newspaper today under the heading `Tories fear wipe out after 3 weeks of Truss as PM'...

[Big Kev]

Earlier, the pound hit $1.12 against the dollar - close to its level before Friday's mini-budget - but has since fallen slightly

[Stanley]

See THIS BBC report of the latest Truss offering. She admits the turmoil but says she will not change course.
Senior minister Simon Clarke told the Times newspaper the government needed to explain more about how it would control spending, as well as boosting economic growth. "We have acquired spending habits that outstrip our ability to pay for it. That needs to change," he said. He suggested the government was looking to make significant cuts and "trim the fat" when it comes to public spending. "I think it is important that we look at a state which is extremely large, and look at how we can make sure that it is in full alignment with a lower tax economy." Ms Truss confirmed on Thursday that she was looking for cuts across government as a way to pay for the mini-budget measures.
All that is clear from this is that Truss has put the Party into political melt down and that the policies they are looking at to pay for cuts and trickle down to the larger economy is the same old myth of 'money saving measures' at a time when we need investment more than cuts. I predict a stormy conference.....
(Stepping back from the personalities, this is a political catastrophe. I don't see how the Tories can survive this lot or stay in government.)

[plaques]

For those who took the trouble to listen to Liz Truss's radio question times they will be questioning whether it was Truss speaking in person or a series of pre-recorded sound bites activated by key words in the question. Sometimes the answer seemed to fit the question but invariably they had nothing to do with it. The pauses between each answer section made it sound as though her brain had come out of mesh or the computer programme she was using was still running on dial up. Did Truss pass the Turing test? In my mind she failed completely.

The excuses on who is to blame for getting into this mess have narrowed to two main culprits.
1) Putin for starting a war with Ukraine.
2) Keir Starmer because he looks like he could win the next general election.

No 2 Looks like some distorted Kafkaesque nightmare but for the Tory experts who can trot out endless twisted reasoning as to why the rest of the world is wrong and they are right without blinking an eye it all seems very plausible.

[Tizer]

they will be questioning whether it was Truss speaking in person or a series of pre-recorded sound bites activated by key words in the question...

I think she's the Tory Party's answer to Alexa, programmed with answers. Have you noticed how she often repeats a word in the same sentence?

The `i' newspaper has really got it in for Truss, here's this morning's front page news...

[Stanley]

See THIS BBC article on the upcoming Tory Conference and asking what should she do next.
What she should do, and the only thing that would have any real effect, is to apologise, reboot the accession process including the 'financial statement' and try to start again.
But of course she will not do that. She will adopt her Thatcherite mode and brazen it out hoping for a miracle to save her. That isn't going to happen. Opposition to her economic theories is hardening at home and globally the whole world is teetering on the edge of recession. Ironically, the person who comes out of this best is Rishi Sunak, it's uncanny to watch some of the campaign clips where they were arguing about how to address the need for growth and Sunak predicted exactly what would happen. He must be lying on his sun bed in California feeling very smug. (Or is he back here for the conference? That could be interesting!
I have long been convinced that what matters to your average Tory MP when assessing a policy is 'how will it play with the voters? Is my seat safe? Apocalyptic figures like a monstrous Labour lead of over 30% in the polls give them the answer so you can bet money that Liz Truss is going to come under attack and I have to say she deserves it. This has been the clumsiest and least well thought out accession to power of any PM, ever!
We now wait and watch the news. Nothing could surprise me now. I see that some MPs are reported as saying they should ditch Truss and appoint Sunak. We have reached the stage where that could be a possibility.....
I wonder what the blue rinse Shire voters would say if they were asked?

[Whyperion]

Trusses declared Aim is More Jobs at Better Pay. The less declared is a big reduction in the scope of the state and the welfare state payments.
The bankers on (Black?) Friday took fright at the mini-statement being unfunded, which was a bit daft as the kick in of most tax cuts would be in 2023. One assumes that the NI reversal would have made no difference as the increase had barely been added to committed spend anyway for 2022
In fairness to the treasury Kwartang saw it as being an expansionery budget to conteract the declared ONS reports and forecasts of recession in GDP. Now by the week following it can be seen that there was minor growth not minor falls in GDP, this reflects on the basis interest rate rise the BoE need(s) to put in to reduce whatever forecast inflation would be. Would be interesting to know even if what the OBR would have advised on Friday and what it would advise a week later as information changes.

[plaques]

The elephant in the room about the 'Mini' budget is the fact that there has been no published report from the Office for Budget Responsibility. (OBR). This spooked the markets and the rest is history. Initially it was claimed it wouldn't be ready in time, this is of course nonsense. The OBR are constantly keeping all their forecasts up to date. In this case they had a draft ready on the information they had gleaned from the government. Kwasi Kwarteng didn't want to know. As more details of the budget emerged the OBR adjusted their findings. Again Kwasi didn't want to know and what's more didn't want anyone else to know so he stopped publication. Finally we are now told that it will be published in Nov 23. Conveniently after a time period where memories have faded and circumstances have changed. The OBR report will reflect the Nov 23 position but not the warnings about the September budget. So there will be no "I told you so' smoking guns. It is rumoured that Keir Starmer is to request a vote in parliament to get the report published immediately this will embarrass the government if they vote against it or equally embarrass them if the OBR's predictions were clear to be seen.

This is mushroom management taken to an extreme.

[Tizer]

The latest Opinium poll. Have a look at the bar chart...
`Liz Truss’s poll ratings plummet lower than Boris Johnson’s before he was forced out: Prime minister’s net approval falls to minus 37, while just 12% say mini-budget was ‘good’'' Guardian