29 October 2022
Today, let us look at what Rishi, new PM UK, calls the “profound economic crisis” that he faces, the monsters he must slay - soaring debt, wild inflation and near-certain recession. Overlooked is our demographics.
Ramin is very good on this this week:
https://youtu.be/aeJRtKfzZhk
Rishi's already said that only Growth can save us. But he also was appointed to get back Stability.
The public and business need financial support. QE and the concentration of wealth has made beggars of three quarters (?) of the popn. Gov.ts have no choice but to stuff the wallets of the poor, in order to keep money circulating in the economy and to keep the beggars off the streets. Where's the money to come from? Growth? Printing? Tax rises? Service cuts? Hmm...
It's a really tough challenge. As Rishi knows, govt.s must govern or they're out - he is PM nbr 3 this year.
The goals are surely growth and stability. Gov.ts must deliver strategies that convince markets and animate policy-makers to go-for-growth and tackle sources of instability in the economy and on the streets.
The indicators of economic instability are inflation in energy food and mortgages/rents stuck at 10%, interest rates rising to 5%, GDP shrinking by 2% and unemployment expected to increase from 3.5 to 5.5% by 2024. These are the effects.
For business, profits are in a pincer between rising costs and taxes; and falling demand - only essentials and brands can advance their price points to deal with inflation. Unilever for example.
Those are the effects, but what re the causes (for our model!)? The causes are principally in the piles of ages-old debt built up since 1971 I'd say, and poor productivity I read compared with our competitors, more recently there's been lingering covid-related supply chain issues, obviously America's fondness for wars and commercial bullying, and difficult to talk about is low-quality immigration.
But surely the first battle-front is the debt, as Rishi says, he "does not want to leave a legacy of debt for future generations to settle"... “because we were too weak to pay for it ourselves”. Reducing debt would reduce interest payments (though not rates) and help business and reassure markets. We should hear that in the Fiscal Statement due in a couple of weeks now. If we hear it, so should the BoE and markets. That's gonna be good for a stronger sterling and the FTSE 250.
Thing here, the challenge, is to shrink debt without strangling growth (growth needs investment and investment needs borrowing); or too much belt-tightening ("Austerity" is really out of fashion).
So as to tax increases, I read, increase corporation tax and dividend tax, but forget the National Insurance rise, or forget it for basic-rate taxpayers at any rate.
And for spending cuts, we'd without doubt cut out the war and foreign aid, and reduce much social spending and personally I'd narrow the scope or the public for spending on the nation's health.
Then there's the chop for subsidies to most NGO outfits and chop moral and ideological "re-education programs", unless Christian, national-socialist or traditional practises like square-dancing. Maybe workhouses for the poor, the elderly, the unemployed?
Focus instead on the UK's physical and digital infrastructure; support building companies that have established programs in low-cost housing; skills training; state subsidies to create strengthen and channel UK poles of competence in eg aeronatics, finance, defence, electronics, AI, film, journalism, tourism, renewables, regional cuisine.
What else would you have govt.s spend money on - x?, y?, z?... other things we daren't discuss?
What do you think would help and what are the UK's chances?
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