Utopia Talk / Politics / Pound crashing after tax cuts on rich

Peter Walsh Member	Mon Sep 26 09:19:00 http://www...s-pound-parity-dollar-bond-tax Pound hits all-time low against dollar after mini-budget rocks markets Odds of sterling hitting parity with dollar jump, as analysts say UK bond market ‘getting smoked’ by giveaway The pound has hit an all-time low against the dollar after the bonanza of tax cuts and spending measures in Kwasi Kwarteng’s mini-budget threatened to undermine confidence in the UK. The pound plunged nearly 5% at one point to $1.0327, its lowest since Britain went decimal in 1971, as belief in the UK’s economic management and assets evaporated. Even after stumbling back to $1.05, the currency was down 7% in two sessions, after the UK chancellor pledged over the weekend to pursue more tax cuts. City economists suggested the slump in the pound could force the Bank of England into an emergency interest rate rise to support the currency. Paul Dales, the chief UK economist at Capital Economics, said the Bank could come out with “tough talk” supported by a large and immediate interest rate hike. “That could involve something like a 100bps or 150bps hike in interest rates (to 3.25%/3.75%), perhaps as soon as this morning,” Dales told clients. The shadow chancellor, Rachel Reeves, told Times Radio she was “incredibly worried” by the market reaction to the mini-budget. As Asia-Pacific markets opened on Monday, Ray Attrill, National Australia Bank’s head of currency strategy, said: “It’s a case of shoot first and ask questions later, as far as UK assets are concerned.” Marc Chandler, chief market strategist at Bannockburn Global Forex, called the currency’s record plunge “incredible” and said there was bound to be speculation of an emergency Bank of England meeting and rate hike. Chris Weston, the head of research at the brokerage firm Pepperstone, said the pound was “the whipping boy” of the G10 foreign exchange market, while the UK bond market was “getting smoked” thanks to Kwarteng’s £45bn debt-financed tax-cutting package. “Investors are searching out a response from the Bank of England. They’re saying this is not sustainable, when you’ve got deteriorating growth and a twin deficit.” “The funding requirement needed to pay for the mini-budget means either we need to see far better growth or higher bond yields to incentive capital inflows,” Weston said. Kwarteng’s mini-budget caused a rout in UK financial markets on Friday. Sterling shed four cents to hit a 37-year low of $1.0856, while the jump in the cost of government borrowing was the biggest in a single day in decades. “The price of easy fiscal policy was laid bare by the market,” said Sanjay Raja, chief UK economist at Deutsche Bank. He said Kwarteng’s tax cuts were adding to medium-term inflationary pressures and were “raising the risk of a near-term balance of payments crisis”. “A plan to get the public finances on a sustainable footing will be necessary but not sufficient for markets to regain confidence in an economy sporting large twin deficits,” Raja said. The UK current account deficit, which includes the trade balance and the net income from foreign investment and transfers, had already widened to a record level this year. The jump in the cost of imported energy is adding to this deficit, which is pushing the pound down towards levels that make UK assets attractive to foreign buyers again. On Friday afternoon, Bloomberg’s options pricing model showed there was a 26% chance the pound and the dollar hitting parity within the next six months, up from 14% on Thursday. Nouriel Roubini, the economist who predicted the 2008 financial crisis, warned bluntly that the UK was starting to be priced like an emerging market, and was heading back to the 1970s. “Stagflation and eventually the need to go and beg for an IMF bailout … Truss and her cabinet are clueless,” he tweeted. But Paul Krugman, a Nobel economics laureate, pointed out that the pound’s depreciation actually improved Britain’s net international investment position. Krugman said a 1970s-style sterling crisis was unlikely to occur unless the Bank of England chooses to monetise the debt, rather than offsetting the fiscal stimulus with tighter monetary policy. Kwarteng tried to play down the financial reaction to Friday’s mini-budget, telling BBC One’s Sunday with Laura Kuenssberg he was focused on boosting longer-term growth, not on short-term market moves, “As chancellor of the exchequer, I don’t comment on market movements. What I am focused on is growing the economy and making sure that Britain is an attractive place to invest,” he said. Kwarteng also indicated that Liz Truss plans to radically reshape the UK economy with even more tax cuts and fewer regulations. The Bank of England is expected to raise interest rates higher to combat the inflationary impact of the mini-budget, as a weakening pound drives up costs of imports. The money markets are pricing a doubling of UK interest rates to more than 5% by next summer. After the mini-budget, the UK Debt Management Office plans to raise an additional £72bn before next April, raising the financing remit in 2022-23 to £234bn. “Sterling is in the firing line as traders are turning their backs on all things British,” said David Madden, a market analyst at Equiti Capital. “There is a creeping feeling the extra government borrowing that is in the pipeline will severely weigh on the UK economy.” The FTSE 100 tumbled 2% to a three-month closing low on Friday. So far this year, the index of blue-chip companies has lost 5% – much less than European or US markets – helped by oil companies, and exporters boosted by the weak pound. “The chancellor’s high-risk strategy could entail a larger FTSE 100 correction before the year is out,” said Charles Archer, a financial writer at online trading platform IG. “As monetary policy tightens, mortgage and debt defaults rise, while investment in growth falls. This could render the mini-budget entirely ineffective.”
williamthebastard Member	Mon Sep 26 09:53:45 Zizek theorized that the only way left to get rid of the far-right rise was to accept it, watch them crash and then mend everything. He seems to be wrong. From Brexit to Trump to Putin, the far-right has only been up and running for a few years and has already crashed spectacularly each time - but their voters just cling on even more desperately as they sink us all.
Paramount Member	Mon Sep 26 11:30:17 ” There is a creeping feeling the extra government borrowing that is in the pipeline will severely weigh on the UK economy.” So am I getting this right… the UK needs to borrow money to finance the tax cuts for the rich people?
Habebe Member	Mon Sep 26 12:07:04 Hasn't the pound been doing shitty for months now? Alongside the Euro also doing shitty AF. Yes, borrowing money right now just, doesn't seem wise, but also its not like everything was going great or anyone expected a different trajectory for the UK regardless of politics.
Habebe Member	Mon Sep 26 12:11:13 As far as left V Right, cough* Germany* cough Does anyone not see basically a failed state? Do we expect this to not be a terrible winter? Worldwide new monetary/new new keynsian theory shit the bed. That's not to say Truss isn't also fucking up, she likely is. But I don't see ledt wing success anywhere.
Sam Adams Member	Mon Sep 26 12:11:41 Ive always wanted to see the war musuem and Victory. Maybe this is a good time. Maybe toss some tea in the thames while singing the star spangled banner.
Habebe Member	Mon Sep 26 12:18:07 Sam, Its a great time to buy UK/EU shit. UK doesn't sell much I want. But Ive been eyeing some German or Japanese kitchen knife sets for a while.
Peter Walsh Member	Wed Sep 28 01:51:07 http://www.bbc.co.uk/news/business-63051702 IMF openly criticises UK government plans The International Monetary Fund has openly criticised the UK government over its plan for tax cuts, warning that the measures are likely to fuel the cost-of-living crisis. In an unusually outspoken statement, the IMF said the proposal was likely to increase inequality and add to pressures pushing up prices. Markets have already raised alarm over the plans, sending the pound plunging. The government says the measures will kickstart economic growth. The IMF said that the government publishing a fiscal plan on 23 November gave it an opportunity to "re-evaluate" tax measures, "especially those that benefit high income earners". The UK government proposals would scrap the top rate of income tax, and end a cap on bankers' bonuses, among other measures. The announcement on Friday sparked days of financial turmoil, as investors dumped the pound and UK debt. Some of the country's biggest lenders also suspended mortgage deals amid the uncertainty.
murder Member	Wed Sep 28 02:02:47 "The International Monetary Fund has openly criticised the UK government over its plan for tax cuts, warning that the measures are likely to fuel the cost-of-living crisis." It won't be a crisis for the wealthy. And the tax cuts will mitigate any price increases for them.
Seb Member	Wed Sep 28 03:40:08 There aren't enough wealthy though - and most tory voters (and many of the people benefiting from the tax cut) are pointing out that it is uneeded and for them undesirable to be rich in a poor society.
Habebe Member	Wed Sep 28 03:53:31 We get it, the UK is Alabama. :)
jergul large member	Wed Sep 28 04:41:16 On the upside, tax breaks combined with markets crashing allows rich people to consolidate their position by using the windfall to stock up on artifically low priced assets.
Seb Member	Wed Sep 28 10:21:41 jergul: The prices are only materially lower if your money is in foreign currency to start with.
jergul large member	Wed Sep 28 11:53:41 Seb What? No. If you money is in a foreign currency to start, then you really make a killing buying UK assets. But I was thinking more in terms of investment income given by the tax cut. A windfall that can be invested at a time when government policies have both given the windfall and also deflated asset costs.
jergul large member	Wed Sep 28 11:55:28 Wait for the rates to increase, then buy a nice appartment in Swansea or another uni town, get a management company for it, and profit off the backs of students. You are welcome!
Seb Member	Wed Sep 28 13:07:38 jergul: I don't really see it: tax cut in future for devaluation of the pound and inflation - I think it leaves you poorer because your income is worth less at about the same rate that assets get cheaper - UK assets remain priced in pounds at about the level all things equal, or go up. Price of property is going to fall in sterling terms > higher rates means that borrowers can afford to borrow less with the same income, and that is what sets the house price. So it would probably work the other way around: buy now, borrow to pay for it with expected tax cut, hope interest rates can be dropped later on and property appreciates. But all in all I am going to go with "batshit insane and incompetent" - nobody seems to be particularly happy with it.
jergul large member	Wed Sep 28 13:14:13 Seb I think the policies will accelerate wealth transfers from regular people to your upper class. Why would your upperclass need to borrow money except for tax avoidance purposes. It probably just boils down to a free apartment in Swansea for the top 5%. Nothing to sniff at, but not a big deal either.
Seb Member	Thu Sep 29 13:47:39 33 point lead for Labour (54%) right now. Lol
Seb Member	Thu Sep 29 13:48:12 Swansea?
jergul large member	Thu Sep 29 15:27:26 A shitty Uni town in Wales. Not a bad place to buy an apartment for a management company to rent out for you.
Seb Member	Thu Sep 29 17:12:23 Student rent returns are shit. That's not what people with income significantly over 150k put their cash into. Just... no.
Seb Member	Thu Sep 29 17:14:03 The truth is worse. This was not some clever con. The fuckers are lunatics that believe their shit. They actually thought this would work and the market would love them for it. This is what is left after the actual intellectuals, and then the conmen and grifters, have left the building. What is left are the patsies and true believers who don't understand anything at all.
jergul large member	Thu Sep 29 17:26:00 Seb You seem remarkably well-informed on the Swansea renting market for students relative to the cost of the initial investment in the Swansea real estate market. I can tell you managing companies in Swansea take 10% to save you checking that out at least. Or maybe you are just pulling an opinion out of your ass? I guess we will never know which it is :D. Work? What work? They are capping gas bills at a 50% increase from last year, tossed in a tax cut for the rich for luls and want to borrow money to pay for it all. That will work. I am sure they will do all three of those things.
Seb Member	Fri Sep 30 08:09:59 Swansea is the base for DVLA which I spent a fair bit of time setting up as a govt digital delivery hub (which hinged on property prices, workforce availability and local wages) - admittedly that was a while back now. You seem remarkably well informed about Swansea for a former fisherman based in the arctic.
Seb Member	Fri Sep 30 08:14:39 "That will work." I hope that's sarcasm? The anticipated borrowing caused a collapse in gilt markets that nearly blew up UK pension funds, necessitating a BoE market intervention; and the inflationary aspect caused inflation expectations to go through the roof.
Habebe Member	Fri Sep 30 09:13:46 I'm curious how much of this drop was really a attributed to this specific action. Its back up to 1.11 I'd Imagine that the UK has a fair amount of debt based in USD. Many currencies, dropped that day relative to the dollar and have been trending down for a long time.
Seb Member	Fri Sep 30 10:17:25 Habebe: Look at the time series of when the pound dropped - it is literally a huge drop against all currencies, as the mini-budget details are being announced. "Its back up to 1.11" Because the BoE bought 65bn of gilts and said it would do what it needed to do, and gave a very strong signal it expected to push interest rates way up. "I'd Imagine that the UK has a fair amount of debt based in USD." No, its overwhelmingly in sterling.
jergul large member	Fri Sep 30 13:52:25 "You seem remarkably well informed about Swansea for a former fisherman based in the arctic." Thank you. Not informed enough. I still have some concerns though. "I hope that's sarcasm?" Sarcasm is a strong word. The government will succeed in its three goals of 1. capping ng prices for consumers. 2. povide a tax rebate for the rich. 3. Fund both by borrowing. The expected fallout however is a different matter that may simply not be a government priority.
Habebe Member	Fri Sep 30 15:40:14 Seb, I think you took my comment as less literal than I intended. Not that this didn't spook the markets, we agree it clearly did. But what else impacted it and by what was caused by this and what was caused by ABC.
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