Is the mini budget a recipe for doom?

[Potemkin Villager]

For me the big unknown is what happens between now and the next GE, because unlike 1997 they have a very solid majority. But it already looks doubtful that Truss and Kwarteng can survive 18 months.

Solid majorities are all fine and dandy but are only of use when the party is more or less
singing from the same hymn sheet and know where they are headed. Mstruss and chums have plenty of knife wielders on and
recently returned to the back benches, the party is not so much divided as split into many factions with different axes to grind and the number of
tory MPs who want her gone is increasing all the time. All the results of what has been done are leading to fear on a mass scale and is a perfect vote loser. Both PM and Chancellor have gone in to hiding sending low level flunkies out to take the heat which is pretty pathetic cowardice. I am not normally a fan of blood sport at the tory party conference tv coverage but am making an exception this year.

[Mark]

This might be the only thing that's ever united this forum

Not quite - Stumuzz2 is a fully paid up member of the trickle down cult....

[BritDownUnder]

I think interest rates have been too low for too long and they need to go up. They have caused runaway inflation in house prices and other factors like net populations gain (let's not get too controversial here) contributed. The problem I have is with the borrowing to pay energy companies. I am pretty sure Economics 101 says subsidies just increase the price by the value of the subsidy.

Tax cuts on the rich, including my aging father who has been retired 30 years, are debatable as they may just go into consumption of imported goods. I had the horror of paying nearly 100,000 dollars tax one year by working lot of overtime but now by working normal hours and getting tax rebates for investing and pensions etc it is now only $28,000 tax a year. I think tax cuts on business might help along with tax breaks for things like R and D and the like.

Not sure about moving to isolated country areas and growing your own food is going to help other than it is cheaper to buy a similar house. If things get really bad (and the majority of population is still alive but hungry) you will still get overrun fairly quickly by the starving masses unless you have some serious firepower or good razor wire fences. Much better to prepare as a country on a national scale and that is where the government spending should go.

[UndercoverElephant]

For me the big unknown is what happens between now and the next GE, because unlike 1997 they have a very solid majority. But it already looks doubtful that Truss and Kwarteng can survive 18 months.

Solid majorities are all fine and dandy but are only of use when the party is more or less
singing from the same hymn sheet and know where they are headed. Mstruss and chums have plenty of knife wielders on and
recently returned to the back benches, the party is not so much divided as split into many factions with different axes to grind and the number of
tory MPs who want her gone is increasing all the time. All the results of what has been done are leading to fear on a mass scale and is a perfect vote loser. Both PM and Chancellor have gone in to hiding sending low level flunkies out to take the heat which is pretty pathetic cowardice. I am not normally a fan of blood sport at the tory party conference tv coverage but am making an exception this year.

So you think there might be another leadership change of the tory party before the next general election?

Boris Johnson is currently only 6-1 as the next PM!

[Stumuz2]

I think interest rates have been too low for too long and they need to go up. They have caused runaway inflation in house prices and other factors like net populations gain (let's not get too controversial here) contributed. The problem I have is with the borrowing to pay energy companies. I am pretty sure Economics 101 says subsidies just increase the price by the value of the subsidy.

Quite right. Most of the present situation was caused by bailing out the banks and debasing the currency.
As for subsidies on the current energy bills, i think it was the morally wrong thing to do. It encourages business as usual, massively transfers wealth to energy traders, and perpetuates the reliance on energy companies to solve all the problems instead of laying out the problem ( not enough energy generated) and possible solutions.

Tax cuts on the rich, including my aging father who has been retired 30 years, are debatable as they may just go into consumption of imported goods. I had the horror of paying nearly 100,000 dollars tax one year by working lot of overtime but now by working normal hours and getting tax rebates for investing and pensions etc it is now only $28,000 tax a year. I think tax cuts on business might help along with tax breaks for things like R and D and the like.

Empirically it does work. Look at the most profitable, largest tech companies in the world. They have their world headquarters in tax dodging Ireland. Why? because they are greedy, and THEY want to decide how to invest those profits. NOT the government. It's basic, the more you tax, the less economic activity you get.

Not sure about moving to isolated country areas and growing your own food is going to help other than it is cheaper to buy a similar house. If things get really bad (and the majority of population is still alive but hungry) you will still get overrun fairly quickly by the starving masses unless you have some serious firepower or good razor wire fences. Much better to prepare as a country on a national scale and that is where the government spending should go.

Been going on since the 60's apparently. The four smallholdings next to me are English refugees of some sort, specialising in Tarot card readings, Indian head massage, etc. All have one thing in common. They do not trust their original communities if things turn dodgy. Which is a shame because as you say, if things get dodgy, the huge advantage you have got is being at the centre of web of a large community, preferably the bigger the better.

[Stumuz2]

Not quite - Stumuzz2 is a fully paid up member of the trickle down cult....

Stumuz is a fully paid up member of governments are rubbish at doing things the private sector does.If the government was put in charge of baked beans, there would be shortages, they would cost £35 a can ( gold plated pensions for all baked bean workers and retire at 50)

Trickle down is an oxymoron. It is used by argument weak people. Of course you do not want your families future wealth to be given away by the state. YOU want to give your family a nest egg. Duh.

[Stumuz2]

Point1. QE was restarted because of pensions.= Fact.

Nonsense. Had the "mini budget" not happened, then QE would not have been restarted. Hence QE was restarted because of the mini-budget. Your sophistry won't work.

So who was the 65 billion given to yesterday?

[UndercoverElephant]

Point1. QE was restarted because of pensions.= Fact.

Nonsense. Had the "mini budget" not happened, then QE would not have been restarted. Hence QE was restarted because of the mini-budget. Your sophistry won't work.

So who was the 65 billion given to yesterday?

The government. It was used to buy government debt, right?

[clv101]

My understanding is that the BoE has pledged £65bn to buy government bonds, effectively providing a price floor. This is important as the price was falling so much that that the pension funds which owned and used these bonds as collateral to raise further funds risked becoming insolvent, being forced to sell bonds, take the loss, further depressing values in a horrible feedback.

The intervention stopped this, but leaves BoE with a lot of over priced bonds. Handily Kwarteng and the Treasury have indemnified the bank of any falls in value of the bonds so the eventual losses still with the taxpayer.

[Stumuz2]

The government. It was used to buy government debt, right?

Wrong. It was used to inflate pension assets.

Have a read of Ludvig Von Mises.

In the final crack up boom. The government will buy and supply everything. This month we have had our energy bills paid by printing. The month is not over and our pensions are being kept whole by printing. Join the dots.

[Stumuz2]

My understanding is that the BoE has pledged £65bn to buy government bonds, effectively providing a price floor. This is important as the price was falling so much that that the pension funds which owned and used these bonds as collateral to raise further funds risked becoming insolvent, being forced to sell bonds, take the loss, further depressing values in a horrible feedback.

The intervention stopped this, but leaves BoE with a lot of over priced bonds. Handily Kwarteng and the Treasury have indemnified the bank of any falls in value of the bonds so the eventual losses still with the taxpayer.

To precis. A bailout.

[UndercoverElephant]

My understanding is that the BoE has pledged £65bn to buy government bonds, effectively providing a price floor. This is important as the price was falling so much that that the pension funds which owned and used these bonds as collateral to raise further funds risked becoming insolvent, being forced to sell bonds, take the loss, further depressing values in a horrible feedback.

The intervention stopped this, but leaves BoE with a lot of over priced bonds. Handily Kwarteng and the Treasury have indemnified the bank of any falls in value of the bonds so the eventual losses still with the taxpayer.

Well, Stumuzz claims the money was used to inflate pension assets, not to buy government bonds. My understanding is the same as yours, oddly enough. The money was printed and given to the government in order to prop up the value of bonds, because nobody else was willing to buy that debt at the price the government wanted to sell it. The goal may well have been to prevent pension assets from falling, but the reason the government needs to borrow that money is because it is giving that sort of money away in tax cuts to the rich.

[Stumuz2]

My understanding is that the BoE has pledged £65bn to buy government bonds, effectively providing a price floor. This is important as the price was falling so much that that the pension funds which owned and used these bonds as collateral to raise further funds risked becoming insolvent, being forced to sell bonds, take the loss, further depressing values in a horrible feedback.

The intervention stopped this, but leaves BoE with a lot of over priced bonds. Handily Kwarteng and the Treasury have indemnified the bank of any falls in value of the bonds so the eventual losses still with the taxpayer.

Well, Stumuzz claims the money was used to inflate pension assets, not to buy government bonds. My understanding is the same as yours, oddly enough. The money was printed and given to the government in order to prop up the value of bonds, because nobody else was willing to buy that debt at the price the government wanted to sell it. The goal may well have been to prevent pension assets from falling, but the reason the government needs to borrow that money is because it is giving that sort of money away in tax cuts to the rich.

Chaotic thinking.

Without a shadow of doubt, pension companies got a margin call (give me money now)
The pension funds had to sell assets to pay their debts to pay the margin call.
If they sold their assets, the pension companies were bust, bankrupt, in the sh&t, out of business.

So the government/BoE bought the assets at inflated prices with printed currency.

https://www.zerohedge.com/markets/qe-ra ... les-or-mmt

[UndercoverElephant]

My understanding is that the BoE has pledged £65bn to buy government bonds, effectively providing a price floor. This is important as the price was falling so much that that the pension funds which owned and used these bonds as collateral to raise further funds risked becoming insolvent, being forced to sell bonds, take the loss, further depressing values in a horrible feedback.

The intervention stopped this, but leaves BoE with a lot of over priced bonds. Handily Kwarteng and the Treasury have indemnified the bank of any falls in value of the bonds so the eventual losses still with the taxpayer.

Well, Stumuzz claims the money was used to inflate pension assets, not to buy government bonds. My understanding is the same as yours, oddly enough. The money was printed and given to the government in order to prop up the value of bonds, because nobody else was willing to buy that debt at the price the government wanted to sell it. The goal may well have been to prevent pension assets from falling, but the reason the government needs to borrow that money is because it is giving that sort of money away in tax cuts to the rich.

Chaotic thinking.

Strict rationalism, actually.

Without a shadow of doubt, pension companies got a margin call (give me money now)
The pension funds had to sell assets to pay their debts to pay the margin call.
If they sold their assets, the pension companies were bust, bankrupt, in the sh&t, out of business.

So the government/BoE bought the assets at inflated prices with printed currency.

And you continue to ignore the elephant in the room, which is that the only reason the pension companies got margin calls was because the pound was crashing, and the reason the pound was crashing was the government has recklessly promised a massive tax cut, mainly for the very rich.

You can refuse to acknowledge the root cause all day, but that won't stop it being the root cause. If the pound had been crashing because of reasons out of the government's control, or because there was some pressing, morally-defensible reason for what they were doing, then maybe you'd have a point, but neither is true. The government caused this situation to occur, and it did so in order to benefit the very rich.

Truss and Kwarteng: "The solution is to cut taxes, especially for rich people. Now, what is the problem?"

[Stumuz2]

And you continue to ignore the elephant in the room, which is that the only reason the pension companies got margin calls was because the pound was crashing, and the reason the pound was crashing was the government has recklessly promised a massive tax cut, mainly for the very rich.

You can refuse to acknowledge the root cause all day, but that won't stop it being the root cause. If the pound had been crashing because of reasons out of the government's control, or because there was some pressing, morally-defensible reason for what they were doing, then maybe you'd have a point, but neither is true. The government caused this situation to occur, and it did so in order to benefit the very rich.

Truss and Kwarteng: "The solution is to cut taxes, especially for rich people. Now, what is the problem?"

.

Chaotic thinking coupled with left wing ideology. A potent brew.

Point 1. " government has recklessly promised a massive tax cut, mainly for the very rich"

The 45% tax cut amounted to little over 2B. Piddle. Wouldn't move an macroeconomic needle. What the government did was go from full Keynesian to heading towards Austrian economic theory. It spooked the markets. The government and central banks print money out of thin air and we, the hallowed finance industry, give it the badge of respectability. Truss wasn't playing their game. Boohoo.

Point 2. "if the pound had been crashing because of reasons out of the government's control"

Then why is every currency (except Russia) crashing against the Dollar?

This is all very simple. MMT is coming to an end. Governments all over the world who believe in fiat currencies now have to start bailing out their citizens.
Truss just pulled the trigger.