Credit deflation and the reflation cycle to come (part 3)

[DurhamBorn]

46 minutes ago, Talking Monkey said:

DB what's your view on 10 years out, do you see it going to total shit globally like Hunter and Dr Tim forecast. You've mentioned several times the UK could run aground due to the idiotic policies being executed by the tories, but could there be a global depression in the 2030s where it all falls over

Yes i do,but im starting to think it might not be everywhere.I thought there would be nowhere to hide,but im starting to think lots of Emerging Markets might be.The west is in serious trouble though.Lots depends on if we can ditch the left wing crap,but given now its obvious they have got themselves into all areas of the public sector and so lose nothing from inflation due to pension and pay increases its likely we will collapse.Almost all wealth is going to be sucked into government through inflation so our only concern is trying to keep up,then allocate the capital where it has the best chance of escaping the spiral down.

[Lightscribe]

2 hours ago, M S E Refugee said:

I wish we could go back to the days when I could just put my money in a high interest account and not worry about it.

If somebody had told me 20 years ago that by 2022 savings accounts would be losing you money due to rampant inflation and it would be far safer to put my money into Sterling Silver Medals depicting the life of Jesus, I would have thought you were fucking crackers, but here I am.

Well I think he may of understood…

[Loki]

9 minutes ago, DurhamBorn said:

Yes i do,but im starting to think it might not be everywhere.I thought there would be nowhere to hide,but im starting to think lots of Emerging Markets might be.The west is in serious trouble though.Lots depends on if we can ditch the left wing crap,but given now its obvious they have got themselves into all areas of the public sector and so lose nothing from inflation due to pension and pay increases its likely we will collapse.Almost all wealth is going to be sucked into government through inflation so our only concern is trying to keep up,then allocate the capital where it has the best chance of escaping the spiral down.

Do you still speak to your old mentor from back when?  I'll always remember reading what you wrote, he said he hoped he'd be gone by then

[Noallegiance]

4 hours ago, Shamone said:

 a pubic sector job.

Can you get me a job there?

[Uncle Buck Rogers]

1 hour ago, Talking Monkey said:

Will the public sector pensions be there in 20 years time in the form that say a 45 year old public sector worker currently expects

Fucking better be

[Shamone]

1 hour ago, Talking Monkey said:

Will the public sector pensions be there in 20 years time in the form that say a 45 year old public sector worker currently expects

Fair point. I can’t see how they can be sustainable.

[sancho panza]

On 02/07/2022 at 16:48, JMD said:

                                                                    Roe vs Wade is currently getting all the attention but other much more significant powers are/will be returned to the states. Some activists are already saying that US national climate agendas will be skupered if the states in future can implement their own local business policies which will effectively override 'green policies'... Reforming US politics by making it more local and less national/tribal could just work. Plus no need for messy, drawn-out arguments about how to reform the 'sacred' US constitution, just let the states decide, simples!!

Weird just had a few beers with the mrs on the first night in ages when one of the kids isn't up.we had a convo ref roe vs wade and I made the same point. 

MSM is fixed on a repercussion of the decision. The much broader theme is the transfer of federal power back to the states.

 

[Agent ZigZag]

22 minutes ago, DurhamBorn said:

The west is in serious trouble though.Lots depends on if we can ditch the left wing crap,but given now its obvious they have got themselves into all areas of the public sector and so lose nothing from inflation due to pension and pay increases its likely we will collapse.Almost all wealth is going to be sucked into government through inflation so our only concern is trying to keep up,then allocate the capital where it has the best chance of escaping the spiral down.

As opposed to a positive reflationary cycle in the west through re tooling at the back of my mind let's say a gut instinct I always had an inkling that the easy route would be taken by the state.  Governments I reckon know how much people have saved in assets ISAs Sipps, pensions savings etc. Easy pickings for them at the expense of a minority of society that hold little to nothing. In 2009 I heard a quote that 50% of the working population work directly or indirectly for the state. what % is that today. The state robs the saver to pay the civil servant and in turn collects the tax. My other worry is recent events have shown a form of capital control has come into effect. Gasprom share holders, robbed. What's to say holders of Henderson Far East won't meet the same fate. There was a snippet on this site from another poster showing how the fall of the Roman Empire played out. It was the state employee that fared  the best whilst other citizens not on their payroll suffered over a long period of time until they eventually left for the suburbs. It's were we get the word suburbium  from. If there is a road map then this period of time certainly may offer some answers as to the play book.

[sancho panza]

On 02/07/2022 at 10:02, M S E Refugee said:

It's like the Kids in the playground realise that the School bully isn't as tough as they thought so everybody becomes emboldened and starts having a pop at him.

Couple of key points you make here MSE.Times they are a changing.Dollar hegemony-as predicted during our informative discussion around the appointment of Jay Powell-looks to be enjoying it's sunset.

On 02/07/2022 at 10:07, M S E Refugee said:

I wouldn't be surprised if some of the Eastern European Countries who are currently hostile to Russia have a change of heart when they are cold and hungry.

The West look like stone-cold losers at the moment and who wants to be associated with a bunch of Woke losers.

I expect Dementia Joe to be jettisoned very soon.

Asa long term betting man,you trian yourself to ruhlessly follow the moeny.The West looks done.Just at the very moment theWest needed a strong,virile leader with a long term vision,they got a strong,query senile leader with a changing vision.

Bit in bold sums the situation up better then the Telegraph and FT can manage at the minute

[DurhamBorn]

51 minutes ago, Loki said:

Do you still speak to your old mentor from back when?  I'll always remember reading what you wrote, he said he hoped he'd be gone by then

On occasion through email and Facebook messaging.He doesnt do much work now,but he manages some trust funds for a few charities for free,quite big portfolios.He wishes he was 30 again though because he thinks macro strategists will be like gold dust.My inflation work has proved much closer to the results than his own.He thinks there is a good chance we are at the end of an epoch defining cycle.The models go off the page down the line ie they go parabolic.Its mainly due to deficit spending.He thinks we must lose democracy or collapse,with very little in between.Interesting i mentioned several years ago i thought our roadmap was showing the economy couldnt produce enough for the demands on it and that would drive the cycle.He said my work on that was some of the best reading of the macro he had ever seen.Its not the disaster he is so worried about,its the massive violence that will go with it.There is hope,but western leadership and "elites" couldnt be worse.He doesnt think its all planned,he just thinks they dont understand macro and history.

[DurhamBorn]

26 minutes ago, Agent ZigZag said:

As opposed to a positive reflationary cycle in the west through re tooling at the back of my mind let's say a gut instinct I always had an inkling that the easy route would be taken by the state.  Governments I reckon know how much people have saved in assets ISAs Sipps, pensions savings etc. Easy pickings for them at the expense of a minority of society that hold little to nothing. In 2009 I heard a quote that 50% of the working population work directly or indirectly for the state. what % is that today. The state robs the saver to pay the civil servant and in turn collects the tax. My other worry is recent events have shown a form of capital control has come into effect. Gasprom share holders, robbed. What's to say holders of Henderson Far East won't meet the same fate. There was a snippet on this site from another poster showing how the fall of the Roman Empire played out. It was the state employee that fared  the best whilst other citizens not on their payroll suffered over a long period of time until they eventually left for the suburbs. It's were we get the word suburbium  from. If there is a road map then this period of time certainly may offer some answers as to the play book.

I still think its in play but its looking more likely the above happens and they simply inflate private wealth away until the state has it all.Its incredible how the state is trying to protect itself and its workers and bennies at the expense of everyone else.Very dangerous times.

[The Grey Man]

5 minutes ago, DurhamBorn said:

On occasion through email and Facebook messaging.He doesnt do much work now,but he manages some trust funds for a few charities for free,quite big portfolios.He wishes he was 30 again though because he thinks macro strategists will be like gold dust.My inflation work has proved much closer to the results than his own.He thinks there is a good chance we are at the end of an epoch defining cycle.The models go off the page down the line ie they go parabolic.Its mainly due to deficit spending.He thinks we must lose democracy or collapse,with very little in between.Interesting i mentioned several years ago i thought our roadmap was showing the economy couldnt produce enough for the demands on it and that would drive the cycle.He said my work on that was some of the best reading of the macro he had ever seen.Its not the disaster he is so worried about,its the massive violence that will go with it.There is hope,but western leadership and "elites" couldnt be worse.He doesnt think its all planned,he just thinks they dont understand macro and history.

I hated that up post. 

Denying the inevitable really

It is the end of an epoch and those with dependents should note that.

Keep up the work DM. Take.care

[Lightly Toasted]

25 minutes ago, Agent ZigZag said:

There was a snippet on this site from another poster showing how the fall of the Roman Empire played out. It was the state employee that fared  the best whilst other citizens not on their payroll suffered over a long period of time until they eventually left for the suburbs. It's were we get the word suburbium  from. If there is a road map then this period of time certainly may offer some answers as to the play book.

I hadn't come across the Roman example before, but it was the same in the Great Depression (but deflationary).

Extreme deflation + secure state employment + fixed salary/pension = richer every year while others are impoverished.

 

[Viceroy]

6 minutes ago, DurhamBorn said:

He thinks there is a good chance we are at the end of an epoch defining cycle.The models go off the page down the line ie they go parabolic.Its mainly due to deficit spending.He thinks we must lose democracy or collapse, with very little in between.

https://www.armstrongeconomics.com/armstrongeconomics101/basic-concepts/the-sixth-wave/

'this is where we see the most dramatic change both politically and economically.. what we face on the other side of 2032 will be a profound change in society as great as that which began with the revolution against Monarchy. ..Socialism has been robbing the people to further the corruption in government.'

[Loki]

11 minutes ago, DurhamBorn said:

On occasion through email and Facebook messaging.He doesnt do much work now,but he manages some trust funds for a few charities for free,quite big portfolios.He wishes he was 30 again though because he thinks macro strategists will be like gold dust.My inflation work has proved much closer to the results than his own.He thinks there is a good chance we are at the end of an epoch defining cycle.The models go off the page down the line ie they go parabolic.Its mainly due to deficit spending.He thinks we must lose democracy or collapse,with very little in between.Interesting i mentioned several years ago i thought our roadmap was showing the economy couldnt produce enough for the demands on it and that would drive the cycle.He said my work on that was some of the best reading of the macro he had ever seen.Its not the disaster he is so worried about,its the massive violence that will go with it.There is hope,but western leadership and "elites" couldnt be worse.He doesnt think its all planned,he just thinks they dont understand macro and history.

Thanks for that.  Maybe those wankers at the 'graph can pass that on to the other wankers at the Graun

[DurhamBorn]

34 minutes ago, sancho panza said:

Weird just had a few beers with the mrs on the first night in ages when one of the kids isn't up.we had a convo ref roe vs wade and I made the same point. 

MSM is fixed on a repercussion of the decision. The much broader theme is the transfer of federal power back to the states.

 

State rights of course caused the Civil War,history is a strange thing,

“Let me tell you what is coming. After the sacrifice of countless millions of treasure and hundreds of thousands of lives you may win Southern independence, but I doubt it. The North is determined to preserve this Union. They are not a fiery, impulsive people as you are, for they live in colder climates. But when they begin to move in a given direction, they move with the steady momentum and perseverance of a mighty avalanche." - Sam Houston, Governor of Texas, 1861

[sancho panza]

On 02/07/2022 at 22:04, Plan-b said:

Britain on the brink

https://surplusenergyeconomics.wordpress.com/2022/07/02/234-britain-on-the-brink/

.. from the comments  "Maybe gold bugs will finally have their day. "

Another reason for gold ownership is also as a currency hedge.

A stuning read thanks for posting.The long psot police will be whinging but there's more.

'Whether the country’s leaders know it or not, the United Kingdom is now at serious risk of economic collapse.

We must hope that this doesn’t happen. If it does, it will take the form of a sharp fall in the value of Sterling which, in these circumstances, is the indicator to watch.

A currency crash would cause sharp increases, not just in the prices of essential imports such as energy and food, but also in the cost of servicing debt. In defence of its currency, Britain could be forced into rate rises which would bring down its dangerously over-inflated property market.

There are two main structural problems in the British economy, both of which are simply stated.

First, the economy operates on the basis of continuous credit expansion.

Even before the onset of the pandemic in 2020, Britain had spent twenty years adding £4 of new debt for each £1 of reported “growth” in GDP

This process is underpinned by the over-inflation of the values of assets, and principally of property. High and rising property values provide both the collateral and the confidence for perpetual credit expansion.

This is why successive governments have sought to promote, rather than try to tame, house price escalation.

Every initiative branded as “help” for young buyers has, in reality, been a device for propping up or further inflating the real estate market.

The second structural weakness is the permanent and worsening current account deficit. The United Kingdom consumes more than it produces.

 

 

Self-created risk

The dangers implicit in this structure are clear.

First, a heavily indebted and credit-dependent economy is extremely vulnerable to rises in interest rates. This vulnerability has become acute now that the global rate cycle has turned upwards.  

As well as increasing the cost of servicing debts, rate rises threaten to crash asset markets, thereby taking away the collateral and confidence props required for the continuous credit expansion upon which the British economy relies.  

Second, overseas investors might start to wonder about Britain’s ability to cope with a steadily worsening structural current account shortfall, reasoning that there are limits to how long any economy can survive by “selling off the family silver” or relying on “the kindness of strangers”.

Additionally, of course, FX markets might fear a descent into chaos. The UK authorities’ approach to inflation looks – to put it charitably – like a product of blind panic.

Problems cannot be fixed by appointing a “tsar” and starting an ad-and-slogan campaign.

 

The ideology trap

Extreme liberalism has made the British economy, and British society itself, increasingly dysfunctional. The system is biased in favour of those generally older people who already own assets, and loaded against the generally younger people who aspire to accumulate them. It favours speculation over the creation of value.   

Perhaps the biggest problem of all is the extent to which the public has swallowed the propaganda of liberal extremism, an extremism which states that anything motivated by private profit must be superior to anything managed on the basis of the general good.

6 hours ago, Pip321 said:

Thanks for posting. Interesting.

Having listened to this (on my nice long walk through the countryside) I would probably tone down my glowing assessment of his macro understanding. He understands the retrospective but looking forward probably still too focussed on BTC and tech. I still think fundamental digital will succeed…just for me the main issue is  it i think it’s more likely to be another (as yet created) digital currency/currencies. 

Too much wooo, ahhhhh (false awe) from the interviewer on things that are quite basic  

Interestingly though towards the end of the long interview he confirms he isn’t a geopolitical expert…but I think he got the assessment of the East West split, the desire to not use the US dollar in the East and China sitting in the wings and watch Taiwan fairly spot on. Better than his macro forward assessments. 😉

I was intrigued recently when someone as apolitical and generally debate/data focused as Shaun Richards passed a  dsiparraging comment at Raoul Pal recently regarding Raoul needing to look at his conscience ref the amount of people he'd steered into crypto.

I've watched RP for a while and whislt I welcome his analysis it was very steered to getting retail into crypto......which sort of begs the questtion why???? when a spread of assets was likely a more rounded strategy even if you agreed with the thesis.

Like I said,Shaun Richards never has a bad word to say about anyone.Telling in itself.And that guy knows his onions.

[sancho panza]

6 hours ago, Lightscribe said:

Which is exactly what I’ve been saying since I first started working in the emergency services 15 years ago. The gold plated  pensions legacy was always unsustainable, something dreamt up for the benefit of one or two generations.

I used to read the work obituaries, one guy retired in the late 60’s. 2015 he died, claimed pension over 45 years.  

Boy I used to walk to school with, could never work out why his dad didn’t have a job. He used to be an actuary for Legal & General, retired early doors at the height of index linked annuities. Inherited his mums house in the same road, still alive well into his late 80’s getting a new car every 2-3 years.

Someone has to support that and the younger generation can barely support themselves.

The quid pro quo is that the youngsters are absolutely screwed.Newly qualified para's are on £25 plus unsocial.Sounds alright until you factor in the gravity of the decisons they're making and the fact that they're working nights/weekends/lates.

On top of that,prob 50% of paramedics currently working have a huge,inflating stuednt detbs of £50k for the privilege accruing £3.5k in compiund interest.

Even worse is that msot UK cities prob have more firemen sleepign than they do coppers actually on duty keeping the public safe from some very nasty people.(lot of 250,000 cities will have circa 12-15 coppers on duty correct me if I'm wrong @Lightscribe)

AS a anation we need to default on govt defiend benefit schemes but personally would reccomend we start with the MP's first.People like Jacqui Smith who claimed here sisters's front bedroom as her main home so she could claim her second home allowance(and all the free shit that went it) for the one she shared with her husband and kids in Brum.

Truly we are fucked.Our political class are complete upper class twits

Edit to add:Loads of Tories too,she jsut always stuck out because she was in cahrge of the justice system at the time.

[sancho panza]

Aussie gold miners kicking off the week in bullish mood.

context

[Lightscribe]

6 hours ago, sancho panza said:

Weird just had a few beers with the mrs on the first night in ages when one of the kids isn't up.we had a convo ref roe vs wade and I made the same point. 

MSM is fixed on a repercussion of the decision. The much broader theme is the transfer of federal power back to the states.

 

Eventual Civil war. This will be sparked by the various layers of jurisdiction of state vs national. An incident escalates cross border where local law enforcement arrests and national agencies wade in and are then arrested and so on.

The disinflation cycle and tech boom, has allowed the democratic states to flourish above the republican states, through median income and resulting ability to finance education. Now we are in an inflationary cycle where farming and agriculture demand/income will flip this on its head. 
 

Tax advantages and living costs across states will dictate all. The red states will see mass movement as blue states decay under their own doing.

The end of the disinflation cycle is already proving this to be the case.

https://www.sbsun.com/2022/03/23/what-is-causing-californians-to-leave-california/amp/

https://amp.spectator.co.uk/article/san-francisco-is-decaying/amp

https://www.bloomberg.com/news/articles/2022-03-28/la-mayor-blames-housing-housing-and-housing-for-urban-exodus

[Pip321]

6 hours ago, sancho panza said:

The quid pro quo is that the youngsters are absolutely screwed.Newly qualified para's are on £25 plus unsocial.Sounds alright until you factor in the gravity of the decisons they're making and the fact that they're working nights/weekends/lates.

On top of that,prob 50% of paramedics currently working have a huge,inflating stuednt detbs of £50k for the privilege accruing £3.5k in compiund interest.

Even worse is that msot UK cities prob have more firemen sleepign than they do coppers actually on duty keeping the public safe from some very nasty people.(lot of 250,000 cities will have circa 12-15 coppers on duty correct me if I'm wrong @Lightscribe)

AS a anation we need to default on govt defiend benefit schemes but personally would reccomend we start with the MP's first.People like Jacqui Smith who claimed here sisters's front bedroom as her main home so she could claim her second home allowance(and all the free shit that went it) for the one she shared with her husband and kids in Brum.

Truly we are fucked.Our political class are complete upper class twits

Edit to add:Loads of Tories too,she jsut always stuck out because she was in cahrge of the justice system at the time.

Paramedics have had a couple of mentions on this thread…and I have to say, without exception, my many dealings with the guys who arrive in the ambulance are the best advert for the NHS possible.

They arrive at the worst possibly situations and are calm, focused, reassuring, eye contact with patients, knowledgeable…..it’s almost like they save lives. Nothing against nurses they are great but these guys go and see things in settings that I really wouldn’t want to do. 

We value all the wrong skills and shit nowadays. The paramedic should earn £60k and the pencil pushers accountants shuffling bits of paper for the NHS should earn £25k not the other way round. 

 

[belfastchild]

7 hours ago, sancho panza said:

The quid pro quo is that the youngsters are absolutely screwed.Newly qualified para's are on £25 plus unsocial.Sounds alright until you factor in the gravity of the decisons they're making and the fact that they're working nights/weekends/lates.

On top of that,prob 50% of paramedics currently working have a huge,inflating stuednt detbs of £50k for the privilege accruing £3.5k in compiund interest.

I know one who pulled out of para uni course after a year, had spent 5 years doing voluntary work whilst at school to get on the course.
Now working an office job for 20k, with prospects and no further student debt. The 20k job comes with a list of benefits as long as your arm and they dont have to deal with drunks and fat people (or the NHS).

[DurhamBorn]

7 hours ago, sancho panza said:

A stuning read thanks for posting.The long psot police will be whinging but there's more.

'Whether the country’s leaders know it or not, the United Kingdom is now at serious risk of economic collapse.

We must hope that this doesn’t happen. If it does, it will take the form of a sharp fall in the value of Sterling which, in these circumstances, is the indicator to watch.

A currency crash would cause sharp increases, not just in the prices of essential imports such as energy and food, but also in the cost of servicing debt. In defence of its currency, Britain could be forced into rate rises which would bring down its dangerously over-inflated property market.

There are two main structural problems in the British economy, both of which are simply stated.

First, the economy operates on the basis of continuous credit expansion.

Even before the onset of the pandemic in 2020, Britain had spent twenty years adding £4 of new debt for each £1 of reported “growth” in GDP

This process is underpinned by the over-inflation of the values of assets, and principally of property. High and rising property values provide both the collateral and the confidence for perpetual credit expansion.

This is why successive governments have sought to promote, rather than try to tame, house price escalation.

Every initiative branded as “help” for young buyers has, in reality, been a device for propping up or further inflating the real estate market.

The second structural weakness is the permanent and worsening current account deficit. The United Kingdom consumes more than it produces.

 

 

Self-created risk

The dangers implicit in this structure are clear.

First, a heavily indebted and credit-dependent economy is extremely vulnerable to rises in interest rates. This vulnerability has become acute now that the global rate cycle has turned upwards.  

As well as increasing the cost of servicing debts, rate rises threaten to crash asset markets, thereby taking away the collateral and confidence props required for the continuous credit expansion upon which the British economy relies.  

Second, overseas investors might start to wonder about Britain’s ability to cope with a steadily worsening structural current account shortfall, reasoning that there are limits to how long any economy can survive by “selling off the family silver” or relying on “the kindness of strangers”.

Additionally, of course, FX markets might fear a descent into chaos. The UK authorities’ approach to inflation looks – to put it charitably – like a product of blind panic.

Problems cannot be fixed by appointing a “tsar” and starting an ad-and-slogan campaign.

 

The ideology trap

Extreme liberalism has made the British economy, and British society itself, increasingly dysfunctional. The system is biased in favour of those generally older people who already own assets, and loaded against the generally younger people who aspire to accumulate them. It favours speculation over the creation of value.   

Perhaps the biggest problem of all is the extent to which the public has swallowed the propaganda of liberal extremism, an extremism which states that anything motivated by private profit must be superior to anything managed on the basis of the general good.

I was intrigued recently when someone as apolitical and generally debate/data focused as Shaun Richards passed a  dsiparraging comment at Raoul Pal recently regarding Raoul needing to look at his conscience ref the amount of people he'd steered into crypto.

I've watched RP for a while and whislt I welcome his analysis it was very steered to getting retail into crypto......which sort of begs the questtion why???? when a spread of assets was likely a more rounded strategy even if you agreed with the thesis.

Like I said,Shaun Richards never has a bad word to say about anyone.Telling in itself.And that guy knows his onions.

Fantastic to see others seeing what we have been seeing.The pensions and bennies up 10%  while wages go up 5% etc is the huge thing for me.Its massive.Il give the simple macro on it if you roadmap it.100% certain systemic collapse.

Iv seen that happening as a tiny outlier and sterling likely to increase,BUT my models didnt input freeloaders getting double the increases of workers.Nobody could expect that lunacy.Now,if i input it collapse becomes CERTAIN.If carried on of course.

The question is really now how it plays out.If they go ahead sterling is toast in the shorter term,but might not be in the longer term.I think the thread needs to really consider asset allocation here with laser focus.One good thing is the market hurts the most it can,so a huge part of the pain in the UK will be on house prices,wipe out of leveraged BTL etc.The state will have to make huge reforms as well.

 

[DurhamBorn]

1 hour ago, Pip321 said:

Paramedics have had a couple of mentions on this thread…and I have to say, without exception, my many dealings with the guys who arrive in the ambulance are the best advert for the NHS possible.

They arrive at the worst possibly situations and are calm, focused, reassuring, eye contact with patients, knowledgeable…..it’s almost like they save lives. Nothing against nurses they are great but these guys go and see things in settings that I really wouldn’t want to do. 

We value all the wrong skills and shit nowadays. The paramedic should earn £60k and the pencil pushers accountants shuffling bits of paper for the NHS should earn £25k not the other way round. 

 

The Paras should earn what they do,but 3 bed semis with gardens should be £90k,an immigrant should get zero access to bennies or services for 10 years of NI payments and the bennie cap should be £10k.The minimum wage of a single person working 37+ hours should be double the what the maximum bennies are however many kids.Family formation then happens as all working men become an asset to family income.

[HousePriceMania]

8 hours ago, sancho panza said:

A stuning read thanks for posting.The long psot police will be whinging but there's more.

'Whether the country’s leaders know it or not, the United Kingdom is now at serious risk of economic collapse.

We must hope that this doesn’t happen. If it does, it will take the form of a sharp fall in the value of Sterling which, in these circumstances, is the indicator to watch.

A currency crash would cause sharp increases, not just in the prices of essential imports such as energy and food, but also in the cost of servicing debt. In defence of its currency, Britain could be forced into rate rises which would bring down its dangerously over-inflated property market.

There are two main structural problems in the British economy, both of which are simply stated.

First, the economy operates on the basis of continuous credit expansion.

Even before the onset of the pandemic in 2020, Britain had spent twenty years adding £4 of new debt for each £1 of reported “growth” in GDP

This process is underpinned by the over-inflation of the values of assets, and principally of property. High and rising property values provide both the collateral and the confidence for perpetual credit expansion.

This is why successive governments have sought to promote, rather than try to tame, house price escalation.

Every initiative branded as “help” for young buyers has, in reality, been a device for propping up or further inflating the real estate market.

The second structural weakness is the permanent and worsening current account deficit. The United Kingdom consumes more than it produces.

 

 

Self-created risk

The dangers implicit in this structure are clear.

First, a heavily indebted and credit-dependent economy is extremely vulnerable to rises in interest rates. This vulnerability has become acute now that the global rate cycle has turned upwards.  

As well as increasing the cost of servicing debts, rate rises threaten to crash asset markets, thereby taking away the collateral and confidence props required for the continuous credit expansion upon which the British economy relies.  

Second, overseas investors might start to wonder about Britain’s ability to cope with a steadily worsening structural current account shortfall, reasoning that there are limits to how long any economy can survive by “selling off the family silver” or relying on “the kindness of strangers”.

Additionally, of course, FX markets might fear a descent into chaos. The UK authorities’ approach to inflation looks – to put it charitably – like a product of blind panic.

Problems cannot be fixed by appointing a “tsar” and starting an ad-and-slogan campaign.

 

The ideology trap

Extreme liberalism has made the British economy, and British society itself, increasingly dysfunctional. The system is biased in favour of those generally older people who already own assets, and loaded against the generally younger people who aspire to accumulate them. It favours speculation over the creation of value.   

Perhaps the biggest problem of all is the extent to which the public has swallowed the propaganda of liberal extremism, an extremism which states that anything motivated by private profit must be superior to anything managed on the basis of the general good.

I was intrigued recently when someone as apolitical and generally debate/data focused as Shaun Richards passed a  dsiparraging comment at Raoul Pal recently regarding Raoul needing to look at his conscience ref the amount of people he'd steered into crypto.

I've watched RP for a while and whislt I welcome his analysis it was very steered to getting retail into crypto......which sort of begs the questtion why???? when a spread of assets was likely a more rounded strategy even if you agreed with the thesis.

Like I said,Shaun Richards never has a bad word to say about anyone.Telling in itself.And that guy knows his onions.

The is the sort of crazy bastard talk I've been saying for years now ?

I am not mental ?

What do people think this "economic collapse" would look like and time scales for this ?

Surely if MSM is touting this its:

a) Much further along than people think

b) They need to do something quickly to avoid it, i.e. higher IRs than anyone expects 

I said last week, it's time to get everything into assets...I stand by that, Boris and his 50 year mortgages says the game is up.