Bodge It

Happy Ne…sorry, no time for that now. I’m sorry, I can’t hold it in any longer. Why did she do it? I just can’t come to terms with the fact that the Chancellor, Rachel Reeves, lied on her LinkedIn profile about being an economist at HBOS, from 2006-2008.

I just can’t get my head around it.

HBOS from 2006-2008 was one of the worst financial institutions ever to have existed. It not only drove itself into complete bankruptcy in a short period of time, namely 2006-2008, but drove several other institutions into the ground, simultaneously, through monumentally stupid economic decisions. Then Lloyds, which had to take it over, almost became insolvent itself (well, technically it was insolvent, but just about survived, as we gave them a squillion quid of public money) because the HBOS debts it took on were so enormous.

And our Chancellor………..lied about working there. As an economist. At that exact time. I can’t get over it. Mad.

Anyway – she has bigger problems now. Despite the news being full of Very Grim Things indeed, and the Main Effort now of the government is now to Win the Debate by calling increasing numbers of the electorate Far Right (Huzzah! You’re Far Right! We win!), bond yields are now higher that they were under Liz Truss.

Remember when Mad Lizzie drove yields on the 10yr gilt to 4.3% and everyone decided we were bankrupt, and she couldn’t be PM anymore and had to go back to live in her box with all the other mad frogs? Well they’re now 4.7%, and rising fast, and barely a peep in the news. And long bond yields (ie on the 30yr gilt) are the highest they've been since the late 90s.

Why does this matter? Well, yields go up when prices go down – ie yields on UK government bonds (“gilts”: as the actual bond certificates used to have gilt edges) go up when bond investors – people that lend the government money to fund stuff they can’t fund through taxes or money printing, for various periods, eg 10 years, 30 years, etc – decide that the government is less likely to pay them back. And they are seemingly now coming to the conclusion that the UK is broke, and maybe won’t pay them back at all – and we know they do, as we can tell…as gilt yields are going up and up. And to be fair, the UK is broke. This will now, logically, start to reflect in the currency markets: ie, the pound will, not in a straight line, but steadily over time, decline in value.

The trouble is, the main tool to traditionally use here is interest rates. Interest rates are a tool to protect the currency – but the people that set interest rates think they’re a tool to control the economy. That’s another problem. Interest rates are set by a group of 9 people sitting in a room, which is yet another problem - as this is a pretty Soviet concept: interest rates are, essentially, the price of money - and there are no other prices in the economy that are decided by 9 people sitting in a room, as this is what the Soviets did, and we know that running an economy like this is the quickest way to find out what your pets taste like. And if you don’t believe me that this is a communist principle: I’d encourage you to have a look at what the central planks of The Communist Manifesto were (Hint: one of them was establish a central bank).

But if we put interest rates up to protect the economy, then the yield we pay on the remaining government debt also goes up – as much of the remaining debt is linked to the interest rate we set. And as interest rates go up, inflation will go up as the money supply increases, and yields will go up further etc. Get it? Don’t feel bad if you don’t, as the MPC – the 9 people in question in charge of this stuff – don’t get it either, as they think the opposite happens. But it’s simpler than it sounds: say you have a credit card, and can’t afford to pay it back – so you get another credit card: this second card will have a higher interest rate. But now imagine that the first card’s interest rate goes up in line with the second card’s rate: so you need a third, etc and it ends in a teensy weensy bit of an everyone's-going-to-starve-doom loop. This pushes up inflation, as the money in circulation goes up along with the increased rates (as the yields are higher). 

Not to rain on their crazy parade, but this confuses the 9 people sitting in the room deciding this stuff, as I mentioned, as this is exactly the opposite of what they think should happen – it’s called fiscal dominance, by the way. It: a) ends in bankruptcy, and: b) unhappily is where we are now.

Our economy is now dependent on, firstly, the aforementioned group of 9 people, using the wrong tool, backwards, to do something that it isn’t designed for. Secondly, we are in the hands of someone else who has so little experience of the thing that she’s in charge of – the economy – she lied about being part of the worst economic decision making team in recent record, just so she could say she had even some experience.

So we’ll all doomed, right?

Well, yes. But, not for 18 months: there’s one more blast of the money printers to go, in my opinion – they have no choice now. They’re cornered.

But at some point in 2026-2027 people will realize, en masse, that the value of things like bread and cups of artisan coffee aren’t going up – the value of their five pound note is simply going down. What physicists call a Phase Transition occurs. 

Then it’s all over.

And I haven’t even mentioned what Ed Miliband is doing to drive up energy costs (which inversely correlates to economic growth; see Secret Surveyors passim)…but maybe that’s enough doom for today.

So, Happy New Year. Have a good one. I’m off to alter my LinkedIn profile to say I was in charge of iceberg protection on the Titanic…