The quasi dash for growth
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I suppose we should have a thread to chronicle the failure of the new government’s attempt to make capital accumulate faster in Britain.
Even capitalists themselves are sceptical despite benefitting personally from some of the measures. Unlike populist politicians they have a better understanding of how their system works.
A market reaction like this is normally reserved for Labour governments:
https://www.cnbc.com/amp/2022/09/23/british-pound-plunges-to-fresh-37-year-low-of-1point10-.html
The market responded quickly…a fall in the pound on the foreign exchange…something that will impact on me personally and not help in my cost of living price rise crisis.
It is also increasing the prices of imported goods that workers consume. In the olden days, when currencies were tied to the dollar and the dollar to a fixed price of gold, there were formal devaluations which were a big drama. Since 1971 currencies have floated up and down against each other. Currencies have still “devalued” but gradually rather than as a single event. This is what is happening now to the pound. But the effect will be the same.
Here’s a reminder of what happened to the Wilson Labour government in the 1960d:
https://www.nationalarchives.gov.uk/cabinet-office-100/the-1967-devaluation-of-the-pound/
Back to the good migrant V. bad migrant days
Well, at least they recognise that “to grow the economy” you need more workers to produce the extra wealth. After all, how else can extra wealth be produced except by work and who else can do that except for workers?
One sector guaranteed to grow
UK defence secretary, Ben Wallace, has said military spending will double from its current level to hit £100bn in 2030 as a result of Liz Truss’s commitment to increase the armed forces’ budget to 3% of GDP.
It was obvious that the new government’s attempt to defy the economic laws of capitalism was going to end in failure, probably a spectacular one — there was no chance that the economy would grow by 2.5 percent a year just because the government decreed it — but this seems to be coming more quickly than expected:
Paul Donovan, the chief economist of UBS Global Wealth Management comments, “Advanced economy bond yields are not supposed to soar the way UK gilt yields rose. This also reminds investors that modern politics produces parties that are more extreme than either the voter or the investor consensus. Investors seem inclined to regard the UK Conservative Party as a doomsday cult.”
The yield on the 2-year gilt rose as much as 66 basis points, on top of Friday’s 41 basis point increase, on expectations the Bank of England will respond to the tax cuts with steeper interest-rate hikes.
Donovan’s verdict is that the tax-cut plan offered by new Chancellor Kwasi Kwarteng could generate a short-term sugar high but wouldn’t generate a meaningful medium-term boost. And he said a rational response to the tax cuts would be simply to save them, in anticipation a future government would reverse the cuts.
Sir Keith Starmer KC is saying that “the government has lost control of the economy” (https://mobile.twitter.com/Keir_Starmer/status/1575108711487766533 ) but governments don’t control the economy anyway. They can only react to what is thrown at them and navigate by sight. When he becomes prime minister in a couple of years as now seems likely (how can a Tory government recover from being treated by “the markets” as if there were a government led by Corbyn?) he will find this out as all previous Labour governments have.
We also seem to be seeing confirmation of a remark of Marx’s that while no banking legislation can avoid a financial crisis, bad banking legislation can make it worse.
For the record, what Marx wrote (in chapter 30 of Volume 3 of Capital) was:
“Ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis.”
Fun with fictitious capital:
Pension collapse?So, as I understand this, the pound value/interest rate rises on various financial instruments meant that the financial instruments held by pension funds effectively fell (since their value is in effect a multiplier of their expected income, so as more lucrative bonds came on stream, the value of their holding notionally fell) which meant they would have had to sell off assets in order to fulfil their obligations under financial rules.
So, the Bank of England had to intervene to protect the people in the “liability-driven investors” sector.
It isn’t just the pound falling against the dollar. Other currencies too such as the Chinese yuan.
https://www.bbc.com/news/business-63056680
Simplistically, I am aware that US export market will suffer but the imports benefit but what other consequences have an overly strong dollar has?
But is the dollar overvalued? What seems to be happening is that the dollar is being “revalued” (the opposite of devaluation) and so is rising against all other currencies, more against some than others as in the case of the pound due to the unsound (from a capitalist point of view) policy of the British government.
I don’t think imports and exports play as an important role in the US economy as in some other countries. The fact that international speculators and governments are buying dollars to buy US bonds will be more significant. This is driving their price up and so their “yield” (effective rate of interest) down, meaning that the US can, and is, borrowing more, more cheaply. This enables them to fund their huge war machine among other things.
A world recession?
As you point out – the “expert” economists don’t know
The US Fed’s goal is engineering a “soft landing” — in which it would manage to slow growth enough to curb inflation but not so much as to cause a recession.
“No one knows whether this process will lead to a recession or, if so, how significant that recession would be.” – Powell US Fed Reserve Chair
I think we can guess how the government is going to get itself out of the hole they dug themselves into — they are going to cut back on government spending on social measures (it’s not going to be on spending more on the military). So it will only be a few weeks after promising to deliver “world class public services” that this has gone by the board. Normally it takes a little longer for such promises to be exposed as empty.
UK pension funds sell assets and tap employers in rush for cash
gulp.
“UK pension schemes are dumping stocks and bonds to raise cash and seeking bailouts from their corporate backers as the crisis in the industry continues to rage a week after the government’s “mini” Budget.”
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