Spring statement - Autumn disaster

It is not all their fault but Labour is in trouble

Well Rachel from accounts delivered up her spring statement pretty much as expected. She happily chuntered on about world events, tariffs and more to explain why the economy shat the bed but no one seriously bought it. No Labour via their efforts to talk down the economy they inherited did most of the damage and then our Rachel came along with a 3kg lump hammer and smashed what was left to pieces with her awe inspiringly bad budget - kudos.

They just needed some subtlety and a plan but alas Starmer and his merry band of psychotic no bodies meandered around barking at the moon. I was and am continually amazed at just how bad Labour is. I mean I didn’t expect much really but I did anticipate a modicum of professionalism especially from Starmer as he was Director of Public Prosecutions - you did know that yes if not best say again just in case.

Now Labour will be blamed for everything that happens to the economy which is ironic really as it was always going to slow this year due to Bank of England’s deluded interest rate setting and as the COVID fiscal overhang finally passed through the system. Throw in Trump the destroyer and well yes by almost any measure the UK and the world in general was always going to slow markedly if not out and out fall into recession.

I expect what we will have now will be far more serious though hopefully not as bad as many are predicting. What this sorry event has done is kill off any fiscal headroom she had (Totally made up concept btw). Even now there is none - you can ignore the figures in the Spring Statement. They are bullshit of the highest order which should embarrass everyone involved.

Start with the basics the Office for Budgetary Responsibility (OBR) can’t forecast. I mean seriously if you estimated your cash flow as accurately as these guys then you would have been bankrupt years ago. A monkey throwing faeces at a number chart would be more likely to be right. To a certain extent I have some sympathy as economic forecasting is hard / impossible.

It is a conceit which I criticise on Twitter all the time. Economic forecasting is a mugs game as we don’t really understand how economies work let alone how to model them. Shhh don’t tell the economists. This is actually getting worse as complexity increases as all kinds of feedback loops are formed both domestically and internationally especially within a financial system that literally no one really gets fully.

I mean you regularly see organisations issue forecasts which are out of date within three months and yet we are told that apparently they can forecast three years in the future. Hell during Brexit we had forecasts issued for fifteen years in the future which I thought was especially bullish. Yet they were sucked up and endlessly parroted by the clever people and their mugs in the media.

To give you some idea of how bullshit economic forecasting is, let's take the period from 2008 to 2023. To accurately forecast global GDP or even at a national level you would have had to have predicted the crash of 2008, the Euro crisis, western Quantitative Easing (QE), the Chinese debt bubble, COVID, the Ukraine war, Syria, the Arab spring and everything else. You would have also needed to pick up on the trends in your country and also had a rough idea on interest rates, oil prices and more. It is bollocks and even smaller periods are impossible.

The OBR though is guilty of one major thing which I think is a disgrace. Buried in the back of the Spring fiction - sorry I mean statement they admit that they have not even attempted to forecast the impact of the Employment Rights Bill as apparently it is unknown. That is bollocks and should shame whoever wrote it. The bill for good or for bad is passing through parliament and so they have a rough idea of what it will be like and so to not include it is a political choice and one that reflects badly on the org.

However it is an admission that their made up numbers are not even pretending to model reality over the coming period. I mean in an economy if you don’t know what the labour market is doing then you know nothing. Think about it if you don’t know what the employment rate is then how will you calculate the benefits bill, tax take, growth, the housing market etc and thus the aggregate state

No Rachel stood up and presented a complete fiction and hoped that no one noticed. Currently looking at the gilt market it looks like most people can’t be arsed to argue though I have no idea how long that will last. At some point I suspect someone will point out that she proverbially has no clothes on and that will be that.

However this is not unique to the UK though you wouldn’t know that from the hyperventilating ninnies which make up much of the media and think talk world. If you were listening to them then you would think the UK was alone in a sea of stable countries with perfect debt profiles. That our profligacy had brought us here or if you are a pro EU mong you would be pointing and saying “But but Brexit”.

This is of course nonsense if you show even a modicum of interest in reality - not something many enjoy I know. You have Turkey melting down, India has a debt crisis, China is in trouble, the US and Europe are going down the tubes and much much more. The blunt truth is that the world has too much debt and can’t pay it back or even roll it over with interest rates this high. We are all going bankrupt in short order.

To give you some idea the US government alone will need to roll over or refinance about $9 trillion in debt this year alone. Yes that is Trillion with a T - we are into big numbers here. Numbers at an aggregate level across Europe are not much better I am afraid and the rest of the world combined are even worse. The world is awash in an ocean of debt and no one can afford to see their bond yields jump up by two hundred basis points or similar.

Our Rachel is not to blame for that - what she is to blame for is bringing the eye of the markets down on us by deciding to borrow a load of money to give to her pals in the public sector as pay rises. One can hardly be shocked that financial market operators have looked at her mental budget and thought “This is crackers”. I am quite certain that had she borrowed the cash to build a fleet of nuclear power plants or other productivity increasing investments no one would have blinked but she didn’t.

Furthermore Labour is to blame for deciding to hammer business with both massive tax rises and then also pounding them some more with new employment rights. We can argue the rights and wrongs of what is being passed however the stats speak for themselves. Labour got in and announced everything and hiring and investment flatlined across the economy - that is their responsibility.

Now many are saying she will have to come back for more tax rises and one must look at the current trajectory and agree that is highly likely something will have to give. However as I discussed earlier forecasting is a mugs game and so at best we can give a probability to this outcome. I could make it posh and say there is a 70% chance but that is again giving the illusion of knowing more than I do. What I will say is that there is a high probability that she will have to change her fiscal position and this is where it gets more interesting.

I don’t know what will happen but as discussed no one can afford to refinance their debt with interest rates this high and so something will have to give and so one or a combination of the following will occur. A default will happen either of a big enough company or country which will cause a Lehman style credit event impacting the global economy and financial system. The global economy will slow fast enough that interest rates will fall rapidly as demand collapses. Alternatively major central banks will restart QE and effectively suppress yields by buying up bonds.

Any or all of these will bring down interest on debt which would help solve many of our problems. However the other side of this coin is that a rapidly slowing economy will cause unemployment to surge meaning less tax and more benefit payments. Furthermore the question of whether more QE (By the way it won’t be called QE as that has bad press now) will be inflationary or not and if so how and to what part of the economy could impact our fiscal position. For example more inflation could mean more pension upweighting etc etc.

Do I know how any of this will fall - no - and anyone else who claims otherwise is talking complete and utter drivel however I do know the following:

One, this Spring Statement won’t last out the month as events dear boy events overtake it proving it to be hopelessly inaccurate. This could be on the positive or negative side I just don’t know but with made up figures balanced on the head of a pin it will not take much to prove them to be hopelessly wrong. I personally hope that it falls on the positive side of things as I am first and foremost a patriot who wants the best for my country.

Two, whatever is going to happen to global interest rates is likely to start between now and September as this is when the vast majority of the debt needs to be refinanced this year must be rolled over by. That means we could have a very long and quite stressful summer as we race to the conclusion. You can expect lots of sound and fury and people hitting refresh on the 10 year US Treasury yield as this is the anchor of the entire system.

Three, the global economy is slowing down rapidly which will impact us all. That means you can expect to see lower energy prices as oil keeps slipping downwards as demand continues to cool. This is in fact a good thing as it will take much of the sting out inflation and mean you can fill your car up a bit cheaper. However this will merge with the Labour induced recession at home to form maybe something a bit more unpleasant though time will tell.

Four, Labour is going to get the blame for all of this and I suspect our Rachel’s time at the Treasury is about to come to a shuddering stop as reality bites. She is now a human shield being used by the party as events kick in. Her battered political corpse has been tied to the front of the Labour train to absorb the blows from an increasingly angry public but even more importantly pissed off membership. She knows this but is hoping for a miracle (Might get one) or an alternative job afterwards (Maybe Home Office as that would amuse me).

Five, politics at home and abroad are about to get even more febrile and what is left of the current status quo is going to fray further. That is going to make Labour’s job as guardians of it almost impossible. That means the fight for the right is going to heat up as both Reform and the Tories fight it out to have the right answers. This will be interesting as the Conservatives appear to be undergoing an intellectual renaissance in thinking especially with Jenrick and I wonder if they may pivot away from globalisation.

Lastly and most importantly Labour’s path forward is narrowing as the options within the existing system are one by one closed off. Starmer didn’t pivot to taking money from overseas aid for defence because he wanted to do it. He did so because he has few options when it comes to finding more cash.

The same can be seen when it comes to our Rachel and benefits cuts. The parliamentary party and the membership absolutely loathe it but the truth is the welfare bill is unsustainable and needs to be capped. Worst still many know that these are just the first of many moves on this subject. You can expect the internal party friction to explode into view in the coming weeks and months - again our Rachel’s pulverised political corpse will be used to soak up much of it.

The next issue which is fluttering into view is net zero which impacts everything from industrial capacity through to overall growth. This is already under strain and Labour is desperately trying to soften it but it won’t be enough. However much like with welfare this is a path that the government will be forced down by economic and political necessity. There really is no alternative to binning it such is the reality of the de-industrialisation it is inflicting on the country from Port Talbot to Grangemouth through Vauxhall in Luton and more.

“May you be cursed to live in interesting times” pretty much sums it up nicely. We are definitely in them whether we like it or not. I continue to rage at the state of the country and world but I have hope as necessity is the mother of all inventors or perhaps teacher of hard lessons and our political class are just starting to learn. Events are accelerating which continue to open up the opportunity for change I just hope that it can be used to deflect us from the worst outcomes. Either way as I keep saying this Labour government is not going to deliver what the country needs willingly though I think it is going to be forced to start delivering it unwilling and if that destroys the party then all the better - at this point it is all I can do.