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The Premiership of Mary Elizabeth Truss.Sept 2022 - Oct 2022

PsB said:
and the original article:
https://www.ubs.com/global/en/wealt...s/paul-donovan/2022/mmt-takes-a-pounding.html
"Modern monetary theory has been taken into a corner by the bond markets and beaten up. Advanced economy bond yields are not supposed to soar the way UK gilt yields rose."
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This is silly. The Tory budget has no basis in MMT. MMT says that government spending increases output as long as it is non-inflationary. By implication, MMT says don't do what the Tories have done - spend/cut taxes in a way that looks to be inflationary.

Also, the wilder, and frankly less convincing, claims of MMT (that ultimately the government via the central bank is in charge of bond rates) require an end to Central Bank independence. Something that Kwarteng specifically ruled out in his statement. MMT says don't do what the Tories have done.

The Tories' budget is not MMT, just bad economics.
 
The pound seems to be stabilising for now as the markets are gambling on a hike in interest rates...
 
matthewr said:
My biggest contempt in all of this is for the argument that goes:

2008 QE and borrowing will be our doom any day now.
2009 QE and borrowing will be our doom any day now.
2010 QE and borrowing will be our doom any day now.
2011 QE and borrowing will be our doom any day now.
...
2021 QE and borrowing will be our doom any day now.
2022 See I was right all along!

It's just catastrophically stupid.
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Yes. Borrowing to *invest* in ways that do help the economy can make sense. e.g. improve health, education, build things we need, etc. (cf below)

But:

QE on stilts to give handouts to your rich mates *AND* to put the country in debt for a *consumable* price hike created by an Act of War *AND* promising to get even *MORE* hooked on fossil - all at the same time - is clear proof of delusional insanity.

e,g, of sense: IF they'd QE'd to distribute c100bUKP to the milliions of homes as a grant to make them more energy efficient - thus *lowering* energy demand - it would have made far more sense than throwing it at the energy companies to feed their war profiteering. They could have done that *and* clawed back war profits from the energy extractors... and removed digits wrt wind power, etc, rather than frack.

Whom the Gods destroy, they first make mad.
 
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matthewr said:
But firstly the claim was always that inflation and disaster was imminent. Nobody ever said the imminent cheap money crisis will only actually arrive a decade from now when interest rates actually start to rise (!). You also have a decade long counterfactual to explain so "See! I was right!" is just not going to cut it.

Secondly, this crisis is caused by a terrible fiscal policy (borrowing money to pay for tax cuts for rich people which won't provide growth) and is likely to result in a significant tightening of monetary policy. The idea that it's finally (finally!) the result of loose monetary policy when a very obvious fiscal explanation is starting us in the face is just risible.

If it wasn't such a disaster for the UK I would be enjoying the irony of the the long heralded bond vigilantes finally arriving not to punish cheap money but to punish a bunch of clueless supply siders when they finally get to implement their derganged fantasies in a major economy.
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I’m sure those who leveraged up to buy overpriced homes because they thought cheap money was here to stay will fully understand.
 
PsB said:
and the original article:
https://www.ubs.com/global/en/wealt...s/paul-donovan/2022/mmt-takes-a-pounding.html
"Modern monetary theory has been taken into a corner by the bond markets and beaten up. Advanced economy bond yields are not supposed to soar the way UK gilt yields rose."
"Tax cuts are unlikely to give the UK a meaningful medium-term boost (the supply constraints in the UK economy are more about health and education). A short-term “sugar high” is likely but may be limited."
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As I commented some time ago. There are circumstances and purposes for which QE or borrowing makes good sense. But there are others where it is bonkers. Alas, muppets can't tell the difference.
 
Tony L said:
It is simply insane to pin the Tories reckless gambling onto MMT. Whatever this batshit crazy Tory policy is, it sure as hell isn’t MMT! I don’t know anything about UBS, but that statement suggests they are either clueless, or propagandists, or maybe both.
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i would put more faith in what a Swiss Bank is saying over the some of the opinions expressed on PFM. But hey, that’s just me!
 
Tony L said:
It is simply insane to pin the Tories reckless gambling onto MMT. Whatever this batshit crazy Tory policy is, it sure as hell isn’t MMT! I don’t know anything about UBS, but that statement suggests they are either clueless, or propagandists, or maybe both.
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Yes. It's a bit like blaming a car because the driver took his hands off the wheel and let it hit someone as he lit a fag.
 
NeilR said:
This MMT lark is great isn’t it?


https://t.co/BY5xwZXz76
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Modern monetary theory has been taken into a corner by the bond markets and beaten up.
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Honestly, that is not the language of sober, objective analysis. It is the language of someone with an axe to grind. I would say treat the article with suspicion on those grounds but it isn't even an article, just a bullet point, so there is hardly anything of substance to engage with.

Which brings me to my main point...

I'm still interested in exactly why the markets have reacted so badly to the mini-budget which, to some degree, looks like bog-standard right-wing liberatrian economics (e.g. how did the markets react to Trumps big tax cuts - don't remember it going this badly for him). A few possibilities:

1. It started out as mostly speculative and has now become a herd reaction - markets being driven by sentiment, rather than a rational appraisal of the budget in its own right.

2. The markets are spooked by the sudden increase in the national debt implied by the budget.

3. The markets are spooked by the sudden increase in the national debt implied by the budget and the fact that it is being used to fund tax cuts rather than (e.g.) invest in infrastructure.

4. It is a judgement on the perceived competence of Truss and Kwarteng. If a sensible looking chap like (e.g.) Sunak had done exactly the same thing, the reaction would have been more muted.

5. Insert your own theory here.

What I'm getting at is that I don't think we should take it as given that markets deliver a rational verdict on any given policy. Therefore, it becomes important to understand why the market reacts the way it does.

Forget this mini-budget for a second. Suppose a future government announces a set of policies that we believe to be what the country desperately needs, but involves a similar increase in the national debt. Would we really want an adverse market reaction to stifle such policies? Maybe, in that scenario, it is the market mechanisms that need to be reformed in some way, rather than the policies. Of course, reforming financial markets can't happen overnight, but these things are not God-given, they are constructed by human beings and they can be changed if they obstruct progress. So it seems to me.

A further question is whether Truss and Kwarteng priced in this reaction. If they really are true Thatcherites they will be prepared to let whole swathes of the economy go under in the name of a leaner, more efficient private sphere in future. How far are they prepared to push this, and weather the financial storm (assuming that is possible)?

Thinking out loud... Other thoughts welcome.

PS: see also https://pinkfishmedia.net/forum/thr...h-truss-sept-2022.271714/page-39#post-4802261
 
NeilR said:
i would put more faith in what a Swiss Bank is saying over the some of the opinions expressed on PFM. But hey, that’s just me!
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Given they are so obviously misrepresenting basic MMT theory I wouldn’t. They may be doing so for political or business reasons, I can’t answer that, but they are certainly misrepresenting it.
 
Tories clearly hate the UK and have worked hard to destroy it. They have had years of practice and are getting pretty good at it now.
 
droodzilla said:
Honestly, that is not the language of sober, objective analysis. It is the language of someone with an axe to grind. I would say treat the article with suspicion on those grounds but it isn't even an article, just a bullet point, so there is hardly anything of substance to engage with.

Which brings me to my main point...

I'm still interested in exactly why the markets have reacted so badly to the mini-budget which, to some degree, looks like bog-standard right-wing liberatrian economics (e.g. how did the markets react to Trumps big tax cuts - don't remember it going this badly for him).

4. It is a judgement on the perceived competence of Truss and Kwarteng. If a sensible looking chap like (.
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4 is closest. The 'market' can recognise delusional incompetence when it hits the fan.

Making an idiotic form of huge tax cut *and* borrowing on a grand scale for a *consumable* is clearly insane. Part of the point here is that the consumable is wilfully being made 'scarce'. So everyone buying has to bid at/above everyone else to get some. Thus we drive up the price as we borrow and pay. For a *consumable*. No investment. A flat loss.

Meanwhile the Norwegians and pumping money into their National Weath savings. I heard a comment last night that they have so far made 16,000 quid (as was) *each* to date from this... and rising. Because they have national control of their gas+oil *and* tax the firms they've given extraction consessions to.

We have a Government throwing our money at a fairy tale they believe in.

Question is: How quickly can the rest of the Tory MPs, etc, put up with this? They must realise that pretty much all of them are likely to lose out as a result.
 
Tony L said:
It is a totally incorrect point as MMT is running a deficit against a safe and predictable expenditure e.g. state infrastructure spending (e.g. roads, power stations etc) and factors the employment it generates and the long-term economic benefit such infrastructure clearly adds to a nation.
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MMT says nothing, other than maybe the job guarantee, about what you spend the money on only about how modern money works in developed countries with their own currencies and central banks they control. You could do MMT and just spaff all the extra money on, say, the military and it would still be MMT. The fact that it's mostly touted by progressives as a way to promote progressive causes doesn't change this.

However, what it does talk a lot about about using taxes for (in effect) monetary policy and specifically to control inflation. So if this was MMT taxes would be going up to reduce the money supply and tame inflation not being cut to increase it.

BTW the bloke in the UBS clip is a city economist who are the very worst and should be taken with a massive pinch of salt and preferably ignored. The only reason he is saying MMT here is because it's the current most effective code for "dangerous lefties" and up until a few years ago he would have said Keynesian instead.
 
Tony L said:
I don’t know anything about UBS, but that statement suggests they are either clueless, or propagandists, or maybe both.
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UBS is the world's biggest wealth manager, so clueless they are not. Like all banks, they have to make money, and this may influence decisions or comments that they may make. It was once the case that the advantage of Swiss banks was that they were so conservative that they'd never lose money. In the more freebooting recent years, banks in general became more adventurous, and, in the case of the US ones, downright irresponsible, fashioning all sorts of complex derivative products that nobody really understood, and which blew up in their faces in 2008. How some of those US bankers stayed out of jail is a mystery to me - perhaps a part of the "too big to fail" business.

The UBS didn't have much exposure to this, but nevertheless did have their fingers burned in their US business. I have the impression that, as a result, UBS tends to be more conservative than their big Swiss bank rivals, Crédit Suisse, which is still suffering from more recent financial problems and decisions. I certainly hope so, because what little money we have is in the UBS!
 
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Jim Audiomisc said:
QE on stilts to give handouts to your rich mates
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I do think QE was implemented wrong and I was much more of a helicopter money proponent (i.e. QE to give cash to people who will spend it) and said so at the time.

I also think you can argue that QE didn't really work and certainly most would, I think, argue that it's efficacy was underwhelming, where it was deployed notwithstanding. But I don't think anyone has a better idea about how to deal with a major recession when rates are at the ZLB even now.
 
droodzilla said:
Honestly, that is not the language of sober, objective analysis. It is the language of someone with an axe to grind. I would say treat the article with suspicion on those grounds but it isn't even an article, just a bullet point, so there is hardly anything of substance to engage with.
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There was also a podcast, but again, it offered no explanation of what made Kwarteng's budget MMT, and no explanation as to how the market's reaction was a refutation of MMT.

It appears that he is suggesting that anything that increases the deficit is MMT. If that were the case, implausible as it sounds, you would have to say that Dick Cheney - who famously said in 2002 that 'Reagan proved that deficits don't matter' - was a proponent of MMT. Without an argument to back it up, it's just name calling.
 
sideshowbob said:
His point is that Kwarteng's policy of massively increasing government debt - the collapse of the pound it has caused, and the inflation it is likely to stoke - undermines some of the central claims of MMT about the likely unimportant effects of rapid government debt increases. And on that he's probably completely correct. But I'm saying no more, as all the MMT people on here are evangelists and I don't want to poke them too much with a stick.
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That is quite ignorant of the facts. What Kwarteng has done has nothing to do with MMT.
 
Tony L said:
Given they are so obviously misrepresenting basic MMT theory I wouldn’t. They may be doing so for political or business reasons, I can’t answer that, but they are certainly misrepresenting it.
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my initial comment wasn’t 100% serious as this is not really MMT as the proponents on here advocate. However it does highlight the risks of rapidly increasing borrowing if the markets lose confidence in government policies or unforeseen external events take place.

this is where caution is needed in my view because in the end the bond holders will call the shots.
 
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