I have never made any pretence of my opinion that the post coronavirus recession in the UK is going to be ghastly. However, events of the last few days have forced me to reconsider that opinion. I now think that calamitous may be a better description. I want to keep this blog to manageable scale so let me set out the short form of my reasoning.
The UK was already forecast to run a deficit of £370 billion this year. The deficit for the following three years was forecast to exceed £100 billion each year by the Office for Budget Responsibility. These forecasts were made on the basis that we would get a favourable Brexit trade deal with the EU and other countries and that coronavirus would not return. We now know neither assumption holds true. The government has chosen to make a Brexit deal impossible. Its incompetence is aiding the return of Covid 19.
I admit that I always assumed that deficits would be bigger than the noted forecasts. That was because I am sure that there are many more disguised unemployed people still within furlough arrangements than official estimates suggest. Those official estimates imply that no more than 1 million people still furloughed will be made redundant when the scheme ends on 31 October. I still think that the figure will be much higher.
In addition, I have forecast a massive credit crunch that will emerge over the next few months that will result in many companies, their suppliers and their landlords all failing, with each in turn contributing to growing unemployment over coming months.
I still think that a likely unemployment estimate before the UK decided to break international law and so alienate all our major trading partners, would have exceeded five million people, and could easily have reached six million.
But now we will never know what might have happened in that, now seemingly favourable environment. That's partly because the UK government has now decided to trade in the future without any trade deals, because none of any significance will now be granted, and it is also because it is now very apparent that the feared return of coronavirus is happening. ‘Eat out to help out' might have been one of the most ill conceived government policies of all time. Both policies have very clear economic consequences. However whilst those are of significance, of at least as much importance is their political economic consequence.
With regard to economic forecasting the immediate consequences of these changes are easy to predict. The decision to go for no-deal (because that is what has really happened: everything else is mere cover for this) will devastate significant sections of UK agriculture and manufacturing. If data and financial services deals with the EU are also not done as a result (and there is now no reason to think that they will be) the consequences for services and the City are almost incalculable. And the devastation will be hard to recover from.
For example, milking herds in Northern Ireland are likely to go to slaughter in January as their milk cannot either be used or disposed of. Sheep farming will likely go the same way in the whole of the UK (although I admit there may be environmental benefits of that, but this was not the way to achieve them). And these are just simple examples of the destruction of the capital that supports livelihoods that this decision will give rise to.
Covid-19 outbreaks will massively amplify this destruction. I am not going to attempt to guess the scale of corporate insolvency that is likely if there is another lockdown without support this autumn. Exponential collapse is likely. And if there is a spillover into the City - and that is plausible - expect a full scale banking crisis.
But this is just the start. Unless there is active government intervention to prevent these events arising it takes little imagination to foresee the consequences.
The pound is already falling as a result of the decision to break international law. That is rational, and reasonable. It is also incapable of being addressed by any fiscal or monetary policy. This revaluation reflects a potentially permanent change in the terms of trade that will significantly increase the cost of UK imports even if tariffs are not applied whilst substantially increasing the cost of our exports, dramatically reducing demand for many of them as a result, with consequent further job losses in the UK.
All of this is likely to create significant inflation in the UK. And we need to appreciate that there is nothing, barring changing policy on trade with other nations, that can change that. Don't seek an answer in modern monetary theory or any other economics for this one: this inflation will be politically chosen, as will be the harm that flows from it, and not going can stop that.
The same can be said for the unemployment that will flow from an absence of trade deals. That too will have been deliberately chosen.
But more worrying is the possibility that even with our understanding of MMT there will be little that can be done about the resulting massive levels of unemployment unless trade policy is reversed and a command economy is put in place to put people to work in a measure that will not even approximate to the job guarantee that MMT suggests but will, instead look more like a wartime scenario or that found in the communist economies no one lamented passing. This is because the scale of spending that this level of unemployment will demand will, unless matched by output, result in inflation.
Remember that MMT includes a job guarantee in its mix for a reason: the purpose is to ensure that there is economic activity to absorb necessary money creation during periods of unemployment. If we have unimaginable (until now) levels of unemployment in 2021 and no work programme then we could face total economic meltdown on a scale simply never seen in the UK before. MMT cannot prevent that: it says it will happen. Forget the 1930s: this could be very much worse. And I may be understating my case.
So the question has to be asked as to why the government might be choosing this foreseeable consequence of their actions? Are they really not just disaster capitalists, but something much more malicious? Are they seeking to promote disaster capitalism so that they can deliberately destroy the state to then put their own replacement to it in place?
Is this, in other words, a process of intended destruction to ensure that all the structures of society that we are used to are swept aside, aided and abetted by an easily recruited, hungry and angry army of politically extremist recruits who will sweep resistance before them?
My answer is that I think it is. My belief now is that the government wants massive economic failure in the UK because this is its route to the destruction that it thinks will preface the state Cummings imagines that we need to fulfil his fantasies. And right now it is all too easy for me to imagine that the meltdown I strongly suspect he desires will be easy to generate.
We have then to face the possibility that our government is planning economic destruction for its own political ends - which are the demise of the state as we know it. And I say that because I cannot find another possible plausible explanation for their actions right now.
If you weren't worried, trust me, you should be. This could be very nasty.
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None so blind as those believing a morally and socially distanced society is the natural order of life.
The Tories started to play with fascism in the Cameron/Osbourne period – they were aided and abetted by a certain election consultant from Australia I believe who had used these techniques to good effect there.
The Tories have made a pact with the Devil.
The mixture of incompetence and insouciance that Boris & Co display means that they can only survive by creating a constant churn among the voting public and divide and conquer and at the same time risk the animal(s) they have created running out of control. They must continue to play with fire in order to stay in power because the risk of them being rumbled by more and more people is an ever present reality.
There dynamics also help Cummings, to whom Boris will turn to in order to present it all as something positive and new – and since Cummings has no loyalty except to his own intellectual vanity and is of course not grounded in anything that could be called ‘morality’, woe be unto us.
This lot think we deserve this you know.
And to some extent, Boris and Dom are right.
We do.
“There is no chance of inflation ”
Richard Murphy yesterday.
“There will be high inflation”
Richard Murphy today.
I wonder what tomorrow will bring.
I explained that we have moved into an entirely different economic environment now
Beyond any reasonable extrapolation of previous data
And all you care about is trolling
The Internal Market Bill sec 45 contains a ” Fuhrerprinzip ” provision. The Fuhrer is above all laws ?
Cabinet cannot be bound by ANY laws or courts, International or domestic !
That is a terrifying now as it was in the Nazi parties “Enablement Act “‘ in 1933
Read Sec45 4 ss ( g )
According the the Treasury leaks on the blog a few days ago Gove wants the Treasury to keep spending around Jan / Feb to ‘make Brexit seem a success’, so that means subsidies to Jaguar, Nissan etc to make up their losses. However a combination of Covid and Brexit could mean the economy is 25-30% smaller and if you then add in our EU imports being stuck in a customs tailback at Calais then you have a very bad situation. In fact one of the few that MMT suggests can trigger inflation. So that is a sudden and substantial shock to the economy that reduces output combined with sustained and significant money spending. So you can then have lots of money faced with a shortage of anything to buy.
Agreed
Exactly what I am saying
So pleased one believes as I do, and puts it so well, its not project fear its reality without malice, Japan deal is massively in Japans favour, and provisional, if UK do break signed EU treaty, no nation will trust any deal involving UK, its strange no brexiter has questioned the subsidies issue that are stricter than the EU, or that they seem unaware the WTO have strict subsidy rules too. ( probably if being kind to them they are too thick to comprehend the treaty, or the consequences of breaking the EU one, just revelling in delight of believing UK gov has got one over on the EU, and as long as there hatred for the EU is bloated they care not for the repercussions leaving will have on them till post no deal reality hits them.
I am confused. So everything you have told us for the last 3 months that there is Zero chance of inflation, is now incorrect ?
Partly because of your advice, I locked up my savings for a longer period than I would have done, and now I have the prospect of their value being eroded at a much faster rate than you told us all to expect ?
Well thank you very much indeed.
Did you expect a government that sought economic collapse?
No, nor did I
And I do not offer investment advice and n3ver have
If your going to troll using the name of a star wars character, you could at least make the effort to spell it correctly!
I knew it had to be something like that
Excuse my ignorance for not deleting before it caused offence
https://michael-hudson.com/2020/08/how-an-act-of-god-pandemic-is-destroying-the-west/
This is quite long but the last part is the relevant section which says something similar.
“ It often is easier to get rich in such times of disaster and need than in times of normal prosperity. While the U.S. economy polarizes between creditors and debtors, the stock market anticipates fortunes being made quickly from the insolvency of business with assets and property to be grabbed.”
Ouch!! Beware the vultures!
Basically these coming months, years, will be something like two thousand years of evolution all bottled up together and unleashed on the country. The UK as we knew it just a few years ago will cease to exist. The 1930’s were dreadful times in this and many other countries, the fallout from this perfect storm will take us back there and beyond, time to leave these shores behind maybe? One thing we cannot change without a revolution is this inept, mind numbly stupid, greedy cabal all run from the front living room/study of Cummings who has all the charisma of his doppelganger Sméagol.
[…] And in that case what is this whole debacle for, unless it is part of a plan to ensure that we descend into chaos, as I have suggested? […]
I am trying to get my head round this, but I think Richard is right and the forthcoming depression will be inflationary. This time really is different.
1) Brexit was always going to be inflationary. By encouraging the movement of production and services from the UK to the EU, there would be less for the UK to sell, in order to enable it to buy the euro-denominated goods and services it needed.
2) A no-deal Brexit would make this worse. Tariffs would make the euro-denominated goods and services that we needed more expensive, but would make the goods and services the UK could sell in return, less attractive.
3) Normally a recession would be deflationary, because it would reduce the inflationary effect of competition to buy goods and services.
4) However, in combination with Brexit, a recession will be inflationary, because it will wipe out the ability to produce the goods and services that we need to sell, in order to buy euro-denominated goods and services.
I absolutely agree with your analysis. The really bizarre thing is that most revolutionaries at least profess to have a plan. The Bolsheviks wanted to overthrow the capitalist class because it reasoned the workers would create a better world of prosperity and that once begun a worldwide workers revolution would take place. The Nazis professed to be able to re position Germany as a mighty industrial nation following the collapse of Weimar and that citizens would be well fed and prosperous. The Fascists likewise were going to be empire builders and bring prosperity to Italy. Even the Taliban and Isis have a vision of a greater good hidden behind a religious philosophy. All these visions were there to entice the masses to support their movements coupled with violence against outsiders.
This Tory gang do not offer any vision of a new world to come. It is total nihilism without any pretense at a future utopia of any note. That is a very strange political position to take. The only bit they seem to want to encourage is hatred towards outsiders, be they foreign nationals or intellectuals like judges and others who want to uphold any sense of fairness and decency.
Simon Gray I believe the government does have a vision of the future, which is massive and rapid wealth expansion for the inner circle along with absolute power. And sod the rest of us. However I think even Cummings would find that hard to sell even to the most rabid brexiteers, because there is no transcending philosophy however warped, just naked greed. So the policy is keep us terrified of Covid, lock us in to prevent demos, and encourage people to shop their neighbours (Stalin’s Soviet Union, Nazi Germany and modern China all use/d this tactic to great effect) to divide and rule. Democracy is already dead in this country,
Yes the plan is to make money for a small cabal with no proper procurement. Eg track and trace, Moonshot, HS2. Backed up by state sponsored intimidation. The National Eviction Team employed by the government to deal with HS2 protestors is sinister. I saw them Monday clad in black with balaclavas. Their boss leaning on his Mercedes wearing aviator shades.
[…] Talking of the perfect storm, an article by Richard Murphy is well worth reading after Tanja Bueltmann’s: We have to face the possibility that our government is planning economic destruction for its own pol… […]
[…] Talking of the perfect storm, an article by Richard Murphy is well worth reading after Tanja Bueltmann’s: We have to face the possibility that our government is planning economic destruction for its own pol… […]
Nail being hit on the head in your article Richard, and in some of the other comments. I’m just an old fart (60) watching what’s going on and reading and reading. When I’m joining the dots the picture I see emerging worries me greatly. For the last 80Ish years or so there’s been two prevailing orthodoxies – Capitalism and Communism. (sweeping generality) . Russia is now a post-communist state. So we know what a post-Communist state looks like, But we don’t yet know what a post-capitalist state looks like. What if they are the same? (another sweeping generalisation). What if the UK is being deliberately reshaped to be the the 1st western post-neoliberal-capitalist state created to be like Russia? The theory of Kondratief waves suggests that we could be living through such a change in our economic and social structures. Those pushing for such a new structure in the UK could never reveal their vision to public scrutiny, but they don’t need to. They just need to have the media not reporting what they’re doing, be prepared to operate outside (above?) the law, and have no morality or conscience. Most of these apply to the zealots who control the Tory party.
(incomplete thoughts, but join the dots and that’s the picture I see emerging)
With respect, you’re a mere youngster!
But I like your thinking and the point you make is well worth thinking about
We do know what a post-capitalist city looks like. Think Detroit and UK post-industrial northern cities (before they began to regenerate) – abandoned and delapidated. Now extend that to a country.
I think England is about to experience what Scotland has been going thru for the past 313 years. Depopulation with vast areas of rural and urban decline.
The UK media is the British establishment and lies to protect the position of themselves.
When Scotland leaves the so called Union, where it has a say on nothing, England should take a long look at itself and make changes. I’ve always thought English regions should have devolution, like in the German states, while remaining united but deciding what is best for their own areas. This comment has nothing to do with what has been written above, but has everything to do with the end result. Since the 2014 referendum, the Scottish people have seen clearly the corruption and lies of the British government and its institutions, more so than the good people of England, our take on it has been quicker due to the referendum. Its mainly the Tory mentality of selfishness and greed that is killing this pretend union, it was greatly accelerated by Thatcher and will end with Boris. Labour / Liberal aren’t any better, they are all dancing to a tune. The system is medieval and broken.
Thanks