The obsession with how the 'markets' will react to the budget is ridiculous and unhelpful

[Aliceisagooddog]

Headline after Headline about the bond markets etc. Government is meant to serve the people and the markets are just a small part of our economy. They are meant to serve the economy. This obsession with not upsetting the markets is the tail wagging the dog.

It doesn't really matter what I think.

What matters is what the people in power think.

Economics teaching is always a bit of s struggle because it is so politicised.

That is probably why if you ask the question "why can't you just print money" people will often direct you to what happened in the Weimar Republic, rather than the Great Financial Crash of 2008 where we printed £300 billion IIRC.

One of those situations has far more impact on our lives now than the other. However the other seems to always be held up as the example of "why not".

We picked the best of a bad choice in 2008. No need to actively choose that course now.

Print money? So that a loaf of bread ends up costing £50? Google hyperinflation and see how well that worked in Zimbabwe.

I don’t think it is politicised, it doesn’t have to be. Supply, demand, price and allocation of scarce resources. Some maths and understanding.

I get teaching can be politically skewed but it shouldn’t be.

But it very likely won't drop tomorrow if the government avoid borrowing too much . By raising taxes. That's the trade off. Unless you voted for more Austerity and I doubt many people did.

Is that you Rachel?

Tell me you don’t know anything about the market or economics, OP, without telling me you don’t know anything about the markets or economics…. 🙄

financial markets have the UK by the short and curlies because of the massive (almost 3 TRILLION debt) caused by decades of over-spending. We spend more on paying interest on that debt than we do on education and it's getting worse.

Yes, the can was kicked down the road and we’ve run out of road.

Good post

What have I just read? It’s actually depressing how little people understand economics. Plus the added just print extra money comment, they did do this look up Quantitive Easing, overlooked far too much on why house prices didn’t just rise but rose in a totally crazy and unsustainable fashion.

Is it a surprise? Loads of people don’t understand we never recovered from the 08 crash, that low interest rates & QE masked it and inflated assets. People didn’t talk about wage stagnation for years & some seem to think productivity growth or lack of it is a fairly recent thing.

I agree and I think the bank of England is a key player hiding in the background, encouraging this bond market tail wagging the government dog. I recently learnt about how the Bank of England, uniquely among Western countries, has an explicit and automatic arrangement with the UK Treasury whereby it covers the banks losses real time via deferred assets. This places the burden of the losses incurred by the bank of England during Quantative Tightening (QT), which it's current actively pursuing, on the British taxpayer. This is unique in character to other systems where it is implicitly understood that the national treasury would cover losses should the bank experience a persistent downturn, but they are not explicitly doing so in real time. In addition, the bond markets would be ok with more borrowing, with a possible short term sell off, should there be clear and long term plans to invest that borrowing in capital and infrastructure that will return on investment, less reliance on profiteering investees, landowners and companies, and improve society (such as NHS, Council Housing, etc.). Everyone is after stability, a state that owns nothing is inherently unstable.

Because the public sector have done such a stellar job historically on investing in large, capital projects - people in public sector jobs that they don't have the expertise to do! They need to be able to ask the right questions when handing out public money to the private sector contractors and understand/ push back when needed.

Yes, they did. They did at least before neo-liberalism set up a toll booth between our taxes and public spending. The public sector set up the NHS after world war II. It required political will, not a healthy and growing economy. The public sector ran a reliable postal service and efficient trains before the private sector was gifted these assets, ran them into the ground, blamed workers, and received bailouts for their incompetency. It would be free today to "buy" back the water companies given their debts. That wouldn't even require money, just political will. At the end of the day, those defending the status quo have pretty short term memories and underused imagination; all while calling those trying to employ their own naive or stupid.

You think British Rail was efficient? In retrospect making the NHS free at the point of use has been a disaster - when it was setup the population respected it and were grateful for its existence. Nowadays, it’s an out of control money pit that is widely abused rather than respected. Similarly in education where teachers are expected to change nappies, show children how to use a knife and fork, wash uniform, rather than focusing on academic teaching.

House prices were rising before QE. It was due to easily available credit because of reduced regulation. Self certifying income for a mortgage for example.

Hmm FWIW the bond markets like this budget. They are piling into government bonds. That doesn't mean it's a great budget. But it's not a Truss disaster budget either. The obituaries are somewhat premature.

The trains were a shambles before they were privatised, you’d wait months for a phone line from BT and pay a fortune for calls. The service and price that a nationalised gas company provided was hardly world class.

People are looking back on these nationalised industries through rose tinted glasses. They all provided worse service at higher cost than we get today, and in many cases they were losing money. They were privatised because the country had run out of money to invest in them.

They are now being renationalised to suit a political ideology that’s driving the country into the ground. The hundreds of billions of capital investment that renewed rolling stock, stations and the network post privatisation will now have to be funded by the taxpayer, and will add to £440 billion the UK borrows every year. But it’s alright, because the unions are happy, and train drivers get above inflation pay rises. Meanwhile automation, which would reduce the number of staff required, will now be rejected as the unions are back in control of how the railways are run.

Markets don’t vote. Voters do, they’ve bought time until the local elections.

Doesn’t it just mean that it’s not as bad as they thought? They’d overpriced in the bad news, and now the budget is out there has been a correction. Helped of course by the fact that the treasury has cancelled a few planned bond auctions. Supply and demand in action. The UKs borrowing cost is still higher than any of the other G7 countries, which ought to be a worry for the chancellor, as interest payments are already more than half of the NHS budget.

How 'the markets' respond has a direct impact on the economy as the perception of healthy UK finances and a responsible approach by the Chancellor (i.e. the annual budget) directly affects the cost of government borrowing, which is what keeps the country afloat.

Remember the downfall of Liz Truss? That was thanks to 'the markets' handing her her ass on a plate.

It really really matters what the bond markets think. No-one would care if it didn’t. Perhaps we should teach how governments finance borrowing in school.

This.

The markets don’t care about tax rises the way voters do. They’ve bought time until the local elections.

Markets care about tax rises to the extent that the Chancellor is going to meet, or otherwise, the fiscal rules though surely?

It's OK though, because they've cancelled most local elections haven't they? Along with removing the right to a jury trial and the introduction of a National ID card. All to make sure that you act and think in the right way - just like a true democracy ;)