I posted this thread on Twitter this morning:
We learned a lot about the policy of the government and the Bank of England when it came to inflation yesterday. Above all, we learned that they really want to frighten people into accepting lower standards of living. Economic warfare on the country has begun. A thread….
Yesterday's inflation data shattered the myth that the government and Bank of England are in control of the economy. The reality is very different.
First of all, what is glaringly obvious is that the government has lost faith in the Bank. Even cabinet ministers were throwing out pretty clear criticism of the Bank by last night. Behind the scenes, the fury is apparent.
The government thinks the Bank did too little, too late, and has lost control. What they're now demanding is action. And the reason why is simple to spot. Inflation in the UK is now the worst of any developed country.
The Bank had no choice but say nothing yesterday. It gets its chance to comment today. Almost certainly it will increase interest rates again, hoping forlornly that the policy that has failed it since late 2021 will somehow, against all the odds, work this time.
It won't because, as I explained in a Twitter thread yesterday, the Bank has not only got its diagnosis of inflation wrong, because interest rate rises will never stop inflation of the sort we have, but interest rate rises are now themselves fuelling inflation.
Second, it is apparent that the government has no more clue how to tackle inflation than the Bank, which it says it is backing the Bank as a result.
The government has no plan B for inflation.
Nor has it got any plan to help those hit hardest by interest rate rises.
Third, what the government can't say is that it cannot have such a plan, because the plan is that people should suffer.
We now know this is true. Treasury economic adviser Karen Ward, who was once at the Bank of England and who now works for JP Morgan in London, let this out of the bag on the Today programme on BBC Radio 4 yesterday.
What she said was that to beat inflation the Bank of England has to force the UK into recession. More than that though, she said the Bank has to create fear. That fear should, she insisted, be palpable to the point that people are frightened to ask for pay rises.
Only when people are weakened to the point that they will give up trying to maintain their real incomes will we get rid of inflation, she said. And by the end of yesterday it seemed that economists were queueing up to tell the media that they agreed with her.
Fourth, what this means is that those economists were not only demanding that the government do nothing to help those who might suffer, but that rates must also go up again, and again, and again, until recession is deeply embedded in the economy.
And remember, fifthly, that these are also the type of economist that believes in austerity and says that if there is a recession then we cannot afford healthcare and a great deal else, so that with much regret people must die - as Osborne explained to the Covid inquiry this week.
These people are not, then, just demanding financial misery. They know that they are demanding total misery, imposed at enormous human cost on people who have the misfortune to not be like them in having very well-paid, secure jobs.
The result is that what I heard yesterday were calls by establishment economists for what amounts to economic warfare on the people of this country, which war the establishment will only win when people are crushed into submission by fear.
I wish I could dress up what I heard in another way, but I cannot. I was shocked, appalled and frightened as to the consequences in equal measure. Class warfare has never been more blatantly declared in my lifetime than it was yesterday.
And none of this is necessary. What we're witnessing are supposedly intelligent people who have achieved for themselves personal financial security who are now terrified that everything they think they know, based on the economic textbooks they used at university, is wrong.
Markets don't work in the way they were taught, because what they were taught was wrong.
Inflation is not created by wage - price spirals, although they were told it was.
No one ever mentioned that raising interest rates might, in itself, push up inflation because no one had even thought that possible, and so had never mentioned it, but that is what I ask now saying.
The possibility that the rich might behave differently to the rest of the population because of the impact of inequality was never mentioned to them - and so they cannot see that the messages they're getting from their rich friends are not typical of society at large.
And the possibility that people on immensely tight budgets might have borrowings so large that collectively they can threaten the well-being of banks was never mentioned, because only those well enough to have some slack in their budgets could afford to borrow, they were told.
Meanwhile, their economics did not include the possibility of dissent. People were meant to accept that the powers that be were always right and so would be obeyed.
And what is now apparent is that none of this is true. They wish it was, because believing in these things did, they think, make the economy work the way that they wanted. And now they're terrified that none of this might be true.
But rather than accept that economics, and so the whole of economic policy, might need to be rethought to address the failings that are now apparent, they are instead declaring that their failed economics will work if only we do some more of it.
By which they mean, they claim that all that is wrong with their economics is that rate rises agave not gone far enough and people have not hurt enough as yet, and so the punishment must go on until we get a recession, because that will teach people to obey.
That sure as heck seems like class warfare to me.
But it is also more than that. It is also about a war of ideas. It is about these people defending neoliberalism and their belief that markets are supreme.
It is also about the failure of the neoliberal view that only the wealthy matter.
And it is about the end of the idea that so many economists hold dear that government should steer clear of the economy ( hence the idea of independent central banks) and let those who know about neoliberal economics get on with things.
In amongst the wreckage of people's lives, homes, futures, businesses and so much more we will, when all this is over, find the charred wreckage of neoliberalism and some academic economists and think tankers still yelling ‘if only we'd raised rates a bit more'.
We could reject that neoliberalism and the class warfare inherent in it now.
We could stop the reckless interest rate rises that cannot and will not ever stop inflation.
We could end the fear that is tormenting people - as I heard so vividly on Radio 5 this morning when I was on live with Nicky Campbell.
We could save jobs, businesses, homes and children's security.
We could even save lives.
We could do all that by cutting interest rates.
All that it would take for that to happen would be for people in power to understand that this inflation has not been caused by excess demand, but is caused by non-wage price pressure, and that the increase in the price of money is a big part of that pressure.
We don't need class warfare at all, then. We just need a belief that if only we put more pounds in people's pockets, preferably with less carbon attached to them than ever before, then we can save the economy, and inflation will naturally fade away.
But I fear I will not be listened to. The forces of economic warfare on the people of this country by the powers that be are assembling. And I am not sure what can stop them now. ENDS
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Much needed outrage Richard.
I may be wrong about this but bear with me:
At the kitchen table level the story is this: Last year households faced a crippling cashflow crisis when energy prices threatened to steal £hundreds per month. This affected every household in the land, so the government intervened.
This year the crippling cashflow crisis is caused by ludicrously ill-designed rises in interest rates. Similar level in average £ terms as the energy bill spike, but now only affecting just over a third of households, many of whom are younger than the Tories’ core voting demographic. Mortgaged households are expected to take £300 hit a month to address what? £100 a month general rise in inflation across the country?
Anyone with any sense can see that as awful as inflation is, a household may at least address, say, a 50% rise in cucumbers by not buying them for a while, and that would be better done without the crushing fear of losing your home.
I saw you yesterday on the Owen Jones show and have just found this blog, amazing information! I have just ordered your Money for Nothing book too, keep up the great work Richard!
Thanks
The book is OK – needs an uodate though
Watched you on BBC just now on the Daily Politics show.
Shame you didn’t get more time but at least you got some of your views across hopefully to the “uneducated” public.
Well done.
Thanks
I have just listened to the clear explanation of the effects of the interest rates spiral on inflation on TV this lunchtime. I have thought for quite a while that the current climate of increasing interest rates at a time when the incomes are being put under increasing pressure, is a very blunt instrument indeed.
A further explanantion of the damaging effect of the interest rate spiral on the economy and income, simimlar that which was given on Politics Live today, would be very helpful.
See the Owen Jones intrervew in a nearby post
The Guardian analysis today
https://www.theguardian.com/business/2023/jun/22/bank-of-england-faces-flak-as-economic-history-fails-to-repeat-itself
said this:
“It is reasonable to ask how the Bank underestimated the impact of Brexit on the numbers of skilled workers available, causing shortages in key industrial sectors. Or whether it failed to recognise the impact of a hollowed out health service and its inability to get workers affected by Covid back on their feet.”
May I suggest these are things the government needs to answer – they created the policies, why were they unaware of the probable and predicted effects?
Conservative prime-minister and Labour leader refusing absolutely to discuss all the inflation transmission mechanisms. Just issuing mindless sound bites! Why people bother to vote for these arrogant and selfish ignoramuses I’ll never understand!
https://www.theguardian.com/politics/live/2023/jun/22/james-cleverly-rishi-sunak-inflation-interest-rates-mortgages-covid-inquiry-uk-politics-live?page=with:block-6494765f8f08c081c5bb646d#block-6494765f8f08c081c5bb646d
https://www.theguardian.com/politics/2023/jun/22/labour-would-not-back-subsidising-mortgage-holders-starmer-says
“Class warfare has never been more blatantly declared in my lifetime than it was yesterday.
And none of this is necessary. What we’re witnessing are supposedly intelligent people who have achieved for themselves personal financial security who are now terrified that everything they think they know, based on the economic textbooks they used at university, is wrong.”
You almost had it for a second there Richard then you lost it. The curse of being professionally middle class.
‘They’ are neither frightened or confused. The Government and the Bank Of England are purposefully driving down the standard of living in the UK of the majority of the UK population to protect the wealth of the very richest. As the the UK becomes weaker relative to the world economy, as the boost in value that GDP receives due to it’s close relationship to USD dimishes, as our claim on international food and energy resources declines it becomes imperative to the ruling class of the UK that they protect their own interest at the expense of the rest of the population.
We are still living under a pre 2008 economic system where the assumption was that growth was potentially infinite and the West would always be globally dominant. Those assumptions are shattered and our only chance of a soft landing was electing a government led by people who were genuinely concerned by the living standards of the many. That possibility is now gone, likely for decades, more likely forever. The UK’s new status in the world demands that the ruling class crack down on those below them who by international standards have high standards of living.
As far back as the early 1980s it was quite obvious that none of the Tory neo-liberal policies worked.
All that happened was that for most British people their quality of life declined and they became poorer. Yet remarkably as all of their policies, unhappily bookended by Monetarism and Brexit, proved to be catastrophic disasters, somehow the Tories became richer and richer.
It is foolish to talk lightly about class war, but how else to describe it?
Gob smacking stupidity from the powers that be. Let’s have a list of all those sayings that sum up these people:
‘The beatings will continue until morale improves’
‘Economics – the dismal science’
(Attrib. to Einstein) ‘I know of two things that are infinite; the universe and human stupidity…and I’m not sure about the former’
We need a 21st century Swift, Gilray or Hogarth to lampoon and satirise these blithering imbeciles.
It was Thomas Carlyle who first called economic dismal in response to Malthus’ prediction that population would always grow faster than the food supply, He coined the term The Dismal Science as a reaction to classical liberalism and the belief in self correcting markets in his tract “Occasional Discourse on the Negro Question” (1849). A dispiritingly racist work that called for the reintroduction of slavery to solve the problem of “lost productivity” in the ex slave states of the West Indies.
JS Mill criticised him for the “vulgar error of imputing every difference which he finds among human beings to an original difference of nature”. An argument that seems just as pertinent today with Richard’s excellent description of the views of the ruling classes in politics, finance and the media!
What exactly does core inflation measure? It strips any volatility from food and energy (the things we rely on to survive) but there’s no mention on any sites of what this actually means. Is it (as you suggest) that the consistent rising of interest rates is fuelling this core inflation?
Am I naive to think banks should offer savings rates to within the same margin to the BoE rate as mortgage rates? Otherwise banks are undoubtedly making profit and causing inflation.
It’s no good the government pointing fingers at the BOE, they have far more levers to pull but seem happy to sit in their hands. Could a change to VAT help reduce inflation?
I wish I had time to answer that – but I am sorry I have not and am knackered after a long day
I watched you on the Owen Jones show last evening. You gave a master class in exposing the sheer economic illiteracy of our ministers and bankers. In all my 83 years I have never heard ministers and their supporters express an intention to enforce poverty ,to engender fear into innocent working people. My parents used to describe the awful conditions they had experienced in the 1930s. Nye Bevan in his famous “vermin” speech in 1948 accused the Tories of forcing millions of good people to a life of semi starvation. My daughter has recently moved to South Yorkshire from the South Coast after retiring as a nurse. She went to the local food bank to volunteer her help. What she saw was horrific. There were 80 people waiting for help. (the village has a population of 5,500) Some woman were there for the first time. They were weeping tears of shame.They didn’t in their worst nightmares believe they would have to beg for food. My daughter said the experience has sickened her . She was in tears as she told me the story. Whoever would have believed in my younger years in the 1960s that ordinary folk who have worked all their lives would be hungry if there wasn’t a charity to feed them. Keep up your brilliant work. Be angry. Be very angry.
You are right
Be very angry
I am
After decades of under-investment in the UK the Neoliberal economic and monetary cult adopted by all the main political parties is now being used to make the many even poorer.
https://www.theguardian.com/business/2023/jun/20/uk-economy-in-growth-doom-loop-after-decades-of-underinvestment
When will the many in the UK revolt against the Neoliberal cult? How many years will it take? Will the planet have fried first?
From an unexpected source – https://patrioticmillionaires.org/2023/06/22/the-real-reason-we-want-to-raise-taxes-on-the-rich/?fbclid=IwAR25DIi
“The federal government, on the other hand, is different. Because it issues the currency that we all use, it does not need to raise revenue to “pay for” things. It is not subject to the same limitations as households, businesses, and state and local governments.”
“Increasing taxes on the rich is imperative to address the destabilizing inequality that exists today. By giving more tax cuts to the rich, the new Republican tax package would be a huge step backward in this regard. In contrast, we’re doing all we can at Patriotic Millionaires to take a step forward in this fight by calling on Congress to raise taxes on the wealthy and recommit themselves to use taxes to shrink the gap between the rich and the poor.”
Wow – they have cottoned on. It has taken them a while
I’ve said it myself, so I can only agree about war, although I have also thought that we are being softened up for real war too with China or Russia.
What confronts us now is surely the truth about Western capitalism and what it really means?
Now there is no pretence about our system of society because fear abounds everywhere and of course, those at the top will look after themselves first.
Essentially, this is because we have lost control of a key resource in the West – money.
We have ceased to be concerned about the allocation and distribution of money because it magically allocates itself apparently!
Money is now a purpose unto itself.
Because we’ve become adjusted to seeing it associated with conspicuous consumption (houses, cars, yachts), power and not its use as a social good or leveller.
There has been a huge mistake made about money – and totally in plain sight. We have allowed a few to have as much as they like.
Note to humanity: Bad idea!
After the Brexit vote I felt shock and sympathy for my British brothers & sisters.
When BoJo won that huge majority at the election I felt anger and thought ‘ your problem, you voted for it ‘
But given the evidence – that this bunch of tories are in fact waging warfare on the poor and disadvantaged – I feel outrage and disbelief. Mainly because Starmer is, in many ways, not a genuine alternative.
You’re up s***creek and it seems paddles are not wanted.
Richard, what a great read! I listened to your interview with Shelagh Fogarty on LBC this week, though I missed the one alongside Nicky Campbell.
I know we disagree about Starmer’s Labour Party, but having listened to you, your passion and forthrightness is inspiring even if my economics brain is in its latter stages of atrophy..
Do keep going because different and imaginative economic messages are absolutely essential if we are to be released from the current neoliberal Micauberism.
Vic Derbyshire on Newsnight would be another good platform, I think.
Thanks
I like the phrase Neoliberal Micawberism. Here’s Wikipedia on Wilkins Micawber:-
https://en.wikipedia.org/wiki/Wilkins_Micawber
Doesn’t it perfectly sum up the decades long torpor of the country “something will always turn up!
I thought the link below would be of interest, showing how the Bank of Japan controls the interest rate.
https://billmitchell.org/blog/?p=60934
Parallel universe indeed! Sunak needs to fly Hunt and Bailey to Japan as soon as possible for lessons on how to manage an economy like a grown-up and not a Neoliberal cult member! Would be good if Rachel Reeves was allowed to tag along!
I heard the Karen Ward interview on “Today” yesterday morning while stuck in traffic stopped by temporary lights at roadworks which nowadays take many days to do because of the very small number of workers allocated to the job – another consequence of austerity.
On one hand I was not surprised to hear what she said, considering her current role at J.P.Morgan’s London branch, but I was horrified by it all. It was pure economic witchcraft, with economic voodoo and associated nonsense thrown in for good measure, all of which does indeed add up to class war on those who’s daddy is not “something in the City” or the beneficiary of the family trust fund.
Such people can breath a sigh of relief if they heard Rachel Reeves in the same slot this morning. We had the usual mix of platitudes, bromides and unwillingness to deal with the truth of the situation the country is in.
Our political class is clearly determined to test the maxim “Where there is no vision, all perish – except the already undeserving wealthy” to destruction.
Nothing to do with the topic you are discussing. But I am outraged. And I am sure you will be too. How many died in the submersible? Three very rich Brits (two of Pakistani origin), an American, and a Frenchman. Tragic. How many children, women and men drowned in the Mediterranean last week 300+/- ? They being assorted Pakistanis, Iraqis, Iranians, Afghans etc. Also tragic. How much was spent on coastguard ships, a specialist French rescue submersible, Canadian and American ships, aircraft etc in order to search for and perhaps rescue the wealthy five in the submersible? The answer – vastly more than was spent rescuing or searching for the impoverished Mediterranean victims.
There were another 70 odd victims in the Atlantic between Africa and the Canaries at the same time as the Brits/American/Frenchman were lost the other side of the Atlantic. The plight and distress of those third world victims did not dominate the news as the loss of the submersible. “All animals ae equal, but some are more equal than others” – Orwell.
I tweeted similar sentiment a day or two ago
Current inflation is directly due to the rampant greed of wealth and power. The UK is facing a reckoning with the reality of all the lies the 1% have told, ever since deliberately deconstructing the social democratic consensus briefly established after WW2. Their asinine stupidity is exposed by calls for more of the same, but on a bigger scale! One tragedy is that they can have no flexibility in thinking; because it means complete admission that their whole identity and basis for existence has become meaningless. The other tragedy is that the UK has a uniquely diverse and talented population full of dynamism and creativity that is being deliberately repressed.
The punishment will continue until voters realise neither taxes or borrowing fund government spending and taxes are skewed to benefit the rich.
https://www.youtube.com/watch?v=hiCs_YHlKSI
Excess deaths figures are likely to become a lot more prominent as the economic decline in the UK goes into overdrive, yet again. Austerity mk?
https://petition.parliament.uk/petitions/628188?reveal_response=yes
Of course the government say they have a plan (read it and weep) to address an excess death rate in E&W that is 12.5% higher than the 5 year average to 2022. No mention of inequality as a root cause though. Never mind, the NHS will come to the rescue. Not sure how though since the UK has less doctors, nurses, hospital beds, dentists, physiotherapists, MRI equipment etc etc per 1,000 than any comparable country, and has done for years.
https://www.theglobaleconomy.com/compare-countries/
The donkeys are still fully in charge in the UK.
Hi Richard – I liked your tweet. This is going to be a real disaster for a lot of people.
An idea for you.
Could the government force banks to offer mortgage customers coming to an end to their fixed rate the stress level rate that was applied when they took out their original mortgage, for a grace period of a year. Thus providing customers some time to plan.
(Justification would be that if banks didn’t think it likely that rates could rise above this threshold so quickly how could you expect the public to plan as if they would. It could almost be construed as mis-selling )
I note NIESR said “Monthly mortgage repayments will rise by nearly 50% on average: this rise is above typical stress-tests households are subjected to when applying for a mortgage”.
That could be done….
It is one of the better ideas
[…] Cross-posted from Funding the Future […]
Yesterday, at PMQs Sunak provided a very selective list of interest rates of four countries to compare with the UK, now 5.0%. Australia, Canada, New Zealand and the US. Australia is 4.1%; but the others are 4.75%-5.5%; very selective, three are in the G20, New Zealand isn’t.
Using the G20 alone, a better comparator, his list notably excluded South Korea, 3.55%; China (PRC), 3.5%; Euro Area, 4.0%; and Japan, -0.1%.
Banker-politicians and their juvenile games……..
(Don’t mention Japan it doesn’t play to the rules of the game).
Lazily Japan isn’t mentioned because it doesn’t fit in with the Neoliberal Death Cult prevalent in the country!
https://billmitchell.org/blog/?p=60934
The country being the UK of course!
Isn’t it hugely ironic that many of those who voted for Brexit are now to be rewarded with a huge hit to their incomes and therefore well-being because there are too few workers in the country? According to the Tories and Bank of England this shortage has caused abnormal inflation which can only be cured by ever increasing hikes to base rate and therefore house mortgage loan repayments, etc. Leave voters have shot themselves in the foot financially should be the national headline!
https://www.theguardian.com/business/2023/jun/22/uk-dairy-prices-could-keep-rising-unless-staff-shortages-ease-co-op-warns
It’s very difficult to see much future for this country with all its political parties and mainstream media lazily subscribing to a Neoliberal Death Cult. It’s a death cult because there’s a point blank refusal to have civilised open discussions about economics and monetary systems. Always there’s a rush to emotive rhetoric with questions and issues ignored. Even a newspaper like the Guardian run by a supposedly independent trust won’t and can’t do it!
Perfectly put. Thank you Richard for working so hard and speaking so eloquently to the media.
The behaviour of the Bank of England vainly raising interest rates to fight inflation reminds me of the definition of insanity attributed to Einstein: ‘Doing the same thing over and over again and expecting different results’
Just now there a lot of people with fixed-rate mortgages whose term will soon will arrive. Since the end of 2021 the base rate has been incresed in steps. So the mortgage lenders have been receiving interest on their loans with an increasing gap between the agreed rate and the base rate over the last 18 months.
I believe this forum tells me that the mortgage lender did not own gold to offer the loan – it just opened two accounts Credit and Debit. Why should the mortgage lender take any notice of base rate? It hasn’t (been able to) over the last 18 months, so why should it now?
So why doesn’t the government tell the banks and building societys “Sorry, banks, you may not increase your mortgage interest rates while the crisis exists.
This situation seems to be similar to oil co. profits – money for nothing!
Base rate changes to control inflation does not seem to work, does it?
OK, I know nothing! What am I missing?
Sorry – it this is just too simplistic
MMT cannot ignore the real world
And it so so wrong I do not have time to engage on it – sorry
Sorry, perhaps I should not post.
One question before I shut up; Is mortgage lenders interest rate legally or forcibly linked to base rate?
Not legally linked, no