The Telegraph says in an email this morning that:
Andy Burnham's Commons debut as Prime Minister yesterday was overshadowed by a market rout that sent borrowing costs to their highest in decades.
This, of course, is not true. The rise in interest rates was seen around the world and had nothing to do with the arrival of Andy Burnham at the Despatch Box, but the Telegraph will not miss an opportunity to be stupid whenever one is offered, and duly delivered misinformation in a way that has become all its own.
More worrying was the Financial Times' reaction to yesterday's rising government bond interest rates around the world, which I see as a sign of a forthcoming financial meltdown. They have published an editorial on this issue today under the headline:
Governments should heed the bond market's warning
What do they mean? This paragraph summarises their argument:
Governments should resist the temptation for shortcuts. The most sustainable way to reduce the risk of market ructions is to listen to the signals coming from bond investors, not to ignore or suppress them. That means tackling rising welfare and pension costs head-on and resisting giveaways or tax cuts without credible funding plans. Avoiding political pain today will not make the problem disappear, it only stores up instability in bond markets that could force more painful economic choices tomorrow.
Elsewhere, they noted:
Efforts to hold down rates punish savers, complicate the job of central bankers and, crucially, drown out vital price signals and undermine trust in public debt. Whatever tools they use, finance ministries risk fighting wasteful and losing battles with globally interconnected capital markets.
What, then, is their desire? A number can be very clearly identified.
Firstly, they want central banks to be given free rein to raise interest rates as they see fit to fight the inflation that will be created as a consequence of Donald Trump's war, an energy crisis, drought, El Niño and financial speculation based upon all these things. That is despite the fact that raising interest rates can have no impact whatsoever on inflation arising for these reasons, because that inflation does not reflect excessive demand in an economy, but external price shocks that no one in any one economy can address through interest rate adjustment or any other mechanism. Economic illiteracy is, then, at the heart of the FT's desire.
Second, their reference to “vital price signals” makes it clear that the FT still believes markets should set government policy, and that democratic governments' interest in serving their electorates must come second. Autocracy, then, is a key element within FT thinking.
Third, the interests of those with wealth must, according to the FT, come first. They say savers must not be punished, while suggesting that what they describe as rising welfare and pension costs must be tackled head-on. The message is clear. The economy must be organised in the interests of those whom it has already benefited the most, and the interests of those who have suffered the consequences of markets unfairly allocating rewards - as they always do - must be ignored.
Fourth, the FT issues a veiled threat as self-appointed spokesperson for the bond vigilantes. The message is that the markets must not be bucked, and that governments must not interfere or the worst might happen. They choose not to spell out precisely what they mean, other than by suggesting that bond market instability will be created as a result, with the consequence that what they 'call painful political choices' will be imposed. These, they imply, will fall on those least able to afford the resulting financial turmoil, whatever politicians might, in the FT's opinion, foolishly desire.
I quote the FT at length for one very good reason. The analysis it offers is profoundly repugnant, and its own words must be used to show how clearly this is the case.
It is rare that we see a statement as bold as this, making it so clear that those with wealth think that the cost of the economic failure that they themselves are creating as a consequence of the political programmes they support and the erroneous economic beliefs that they hold must be borne by those who have no role in creating the situation we are now facing, and for whom the relative pain will undoubtedly be greatest.
What might be done about this? That is a right question to ask at this moment. A number of obvious answers occurred to me, all of which could be readily enacted.
Firstly, the Bank of England could be told to stop its quantitative tightening programme, which is deliberately designed to fuel this crisis.
Secondly, the government could declare what it already says exists, and call the current economic situation a cost-of-living crisis, and so intervene in Bank of England policy, ordering it to cut rather than increase interest rates at this point in time.
Thirdly, the government could, if it wished, reduce the number of bonds it sells into financial markets when it appears they do not want to buy them. It could do this by cancelling current bond auctions and funding itself through the Bank of England instead. Rationing the supply of new bonds would immediately affect their price and send shockwaves through the market.
Fourthly, the government could suspend its so-called full funding rule. There is no reason why this exists. It is convention alone that requires that the government appear to clear its overdraft with the Bank of England every day by issuing either bonds or Treasury bills, but there is no requirement upon it to do so, and it is time for this nonsense to end.
Fifthly, the government could announce the introduction of tiered interest rate payments on central bank reserve accounts, with the quite deliberate intention of reducing the funding available to commercial banks to dominate London bond markets, whilst making it clear, if they retain their view that books must be balanced (which is another erroneous economic assumption) that they are doing so to protect the interests of the most vulnerable in society.
Sixthly, the government could announce an inquiry into introducing a financial services tax that might include what is called Spahn taxation, which I explain in the linked glossary entry. This is a tax deliberately designed to tackle financial speculation by making it more expensive to undertake.
Seventh, the government could indicate its intention to increase tax rates on unearned income, which the FT policy is deliberately promoting, and on the monopoly profits of banks, which again the FT is seeking to support.
I make all these points for one good reason: to pretend that there is nothing that the government can do in the face of an assault of this sort on the well-being of large numbers of people in the UK so that bankers and the wealthy might benefit should not go without an adequate response, and such a response does exist.
The question is, will this government have the courage to stand up to bankers now when we all know full well that sometime soon they will be coming begging for bailouts as the financial crisis, which the Financial Times is interpreting as one of government funding, but which is actually one of failing neoliberalism, reaches the point where a crash becomes inevitable?
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It strikes me that seeing central banks responding to cost shocks with high interest rates is like watching a man trying to put out a house fire with a hammer. You’d marvel at the stupidity for a while, before realising that putting out the fire is not his primary aim.
Agreed
The BBC is doing the same thing and framing the higher borrowing costs as the reason the triple lock and welfare spending will need looking at. By looking at, of course they mean cutting. Depressingly Lord O’Neill an ‘advisor’ to Burnham, is quoted as saying Labour needs to ‘get real’.
Why is it always that governments need to get real about ‘excessive spending’ on social programmes and never on ending poverty, dealing with the climate crisis, ending wars, cleaning up our water, to name a few?? I despair.
“The question is, will this………..”wholly owned subsidiary (government) of the UK finance sector ……….”have the courage to stand up to bankers”
There sorted & answered in one go. It can’t & won’t happen.
The LINO imbeciles in gov don’t know enough, are in any case invertebrates and have been groomed to follow orders.
BoE? is part of the UK finance sector & safe pairs of hands rotate in & out.
London delenda est.
At Peterloo in 1819, mounted Yeomanry and Hussars used sabres to cut down the Manchester protesters demanding parliamentary voting reform.
Nowadays, in more “enlightened” times, the vulnerable suffer different types of “cuts”, as the Yeomanry of Threadneedle St. and the Hussars of the City of London, bully the government to cut us down in droves with “difficult choices” (that’s injustice, gross inequality, disease, homelessness, il -health, disability and poverty, in plain English).
The reason you attract so much hostility, Richard, is because you demonstrate so clearly, that there IS an alternative, and more and more people are understanding that.
I wish a journalist would put your seven proposals to John Healey, and ask him, why he cant do that instead of the neoliberal drivel that will comprise his first budget.
I wish someone would ask him that.
The UK information environment is controlled. Puppets like Healy, are not permitted into fora where “difficult” questions are asked. Question Time and the HoC PMQT are performative & fulfil a similar function to a Punch & Judy show – to entertain. Obvs sometimes mistakes happen (a recent Tucker Carlson interview by a UK talking imbecile head) but generally things roll along quite nicely. “There there children, nothing to worry about, mummy (finance parasites) has it all under control”. Style of.
Marx thought the revolution would happen in the UK – he was only out by 100/150 years or so.
I read out the bit about the Telegraph being stupid to my wife and she really laughed so loudly!
There is often a statement that goes unchallenged in the press, which is that higher gilt yields automatically lead to the government paying more to “service its debt”. However, that is only on new bonds and not on those it has previously issued. For fixed interest gilts, the coupon payments (and the redemption payment) do not change so the £ amount that the government is paying to gilt holders on existing stock does not change as gilt yields rise, despite the shock horror headline of 30-year gilt yields being 5.89% p.a. As you suggest, it does not have to issue new bonds and in any case I would expect that they are a very small proportion of the total amount of bonds already in existence.
Agreed, but bonds do turn over at quite a rate. There is an impact, but you are right, it is not as big as the media implies.
Its the FT expressing ideas like this that could lead to the customers of ‘Angry Mob Supplies’ paying a visit to The City
The Ruling Classes have clearly forgotten the lessons of the French & Russian Revolutions which is that a little discretion may be a good idea.
To be fair to the Loonygraph Richard, I don’t think they were actually saying it was Burnham’s arrival in the Commons that caused the rise in bond market interest rates, although the paper is now so absurd a lot of the time that it wouldn’y have surprised me if they did just that. But the premise of the article was that governments must heed (read cower in fear before) the bond markets.
As you say, this is the usual right wing drivel, and actually brings up an interesting point. If governments are dictated to by a presumably fairly small number of people round the world who are bond traders, including of course Clive Parry (no offence Clive, I’ve nothing againmst bond traders myself), why bother to have elected governments at all? I mean, if the UK government can’t find the money needed to properly fund the basic essentials of a society such as healthcare, a legal system, an education system, let alone spend the money needed to decarbonise the economy to prevent climate catastrophe, what is the point of anyone voting for a government?
Can the FT and Loonygraph explain this to me?
PS Clive, do you have a rough idesa of the numbers of bond traders in the world?
The Tories, with the media’s assistance, are shifting their pension stance with a bungling set of reasons set out by Badenoch to focus relief on the most deserving.
Remember Boris Johnson claimed that Brexit would make Britain “The greatest place on Earth” and stated that the UK could become the most prosperous economy in Europe by 2050, surpassing both France and Germany.
Here are the top 10 ranking countries for average state pension expenditure:
Iceland: €35,959 (£30,251)
Luxembourg: €31,835 (£26,778)
Norway: €30,879 (£25,972)
Denmark: €30,211 (£25,410)
Switzerland: €27,010 (22,719
Austria: €24,349 (£20,480)
Netherlands: €24,092 (£20,264)
Belgium: €22,577 (£19,000)
Sweden: €22,436 (£18,882)
Ireland: €21,766 (£18,318)
The average State Pension in EU countries is €16,138 (£13,580) and the full UK State Pension is €14,227 (£11,973 or £230.25 per week).
Besides Albania (€1,648) EU candidate countries have the lowest average pensions. These include Turkey (€2,942), Bosnia and Herzegovina (€3,041), Serbia (€3,486), and Montenegro (€3,962).
https://www.lv.com/pensions-retirement/articles/average-pension-by-country
Many thanks for that.
I often wonder to what degree these articles manage to penetrate the government bubble. Are these people down there (including Burnham) ever paying attention to anything outside of their immediate circle and the primary media sources?
If not, is there any way to put such information on their radar and encourage them towards thinking outside of the box they have folded themselves into?
I have no idea if they penetrate.
There was a time when I knew I was widely read in the Treasury. I have no idea whether that is the case now.
Write to your MP, broadcasters and newspapers quoting or paraphrasing Richard’s blog. I’ve done all of this, I particularly recommend they look at Richard’s Infographics. My letters to the newspapers and rarely published (only the local paper so far) yet I remain optimistic that someone in the various newsrooms will read my letters and perhaps pass them on to the relevant sub-editor or journalist if I’m responding to a commentary piece. I see it as a dripping tap that eventually starts to erode past certainties.
I agree wth you.
These people are saying that we face a number of existential problems but – we can’t borrow, we can’t tax and we can’t use the money creation channel that we licence the private sector to use. Therefore we must reduce public expenditure.
But it is not possible to reduce public expenditure to the extent that would be necessary to address the raft of existential problems we face.
Climate change and the development of AI alone require a larger state and a new approach to fiscal and monetary theory. A sovereign anchor is crucial to the future of the state. Private wealth disappears without a sovereign anchor.
And yet we are reduced to tinkering about , plugging holes in the dam in the full knowledge that the plugs have not historically prevented the water ingress whilst witnessing the .
And the cliches are readily accepted by our media.
Much to agree with.
Couple of questions on bonds Richard.
1. When bondholders sell, who buys and are any left unsold – or are governments forced to buy them back (and I thought they had fixed terms)?
2. Can you please explain why the price goes down and why yields go up during a sell-off.
The market works on funding willing buyers- the government is not in the market at present. There is a shortage of willing buyers; that is why orices are falling.
Thanks.
This Guardian leader on Japan and the US is interesting.
Tokyo could end up defending its currency by dumping US treasury bonds – of which it has more than a trillion dollars worth – and put upward pressure on the very yields Mr Bessent is trying to contain. His demand that Tokyo raise rates and cut spending is not just about Japanese inflation. It is about trying to prevent Tokyo’s adjustment to the Iran shock being exported on to America’s balance sheet.https://www.theguardian.com/commentisfree/2026/sep/01/the-guardian-view-on-the-global-bond-shock-andy-burnham-should-take-note
Bonds are usually have a fixed amount repayable, say £100, and carry interest, often paid in one or two lumps per year. The “yield” is usually the “yield to maturity” – which is a measure of the total return on the capital invested, including any interest payable, and unwinding discount, and any premium. The yield goes up when the price of the bond dips further below its £100 par value.
Some simplified examples. If a £100 one year bond issued for its £100 par value, held and then repaid after one year with 5% interest, it would have a “yield” of 5%.
Or you could issue the £100 bond for a price of £95.24, carrying no interest but returning £100 after one year, and it would also have a yield of 5%.
The unwinding of the discount has the same economic effect as interest, which is why bond investors talk about yield as it combines the two – what did you pay, and what do you get back and when.
If that £100 bond carrying 5% interest for one year was issued for £95 (a £5 discount to its face value), it would return £105 after one year, which is a yield of something like £10/£95 or about 10.5%.
If thet bond sold for £95 after six months, and was repaid at £100 plus £5 interest, the buyer would get at an annualised yield of about 20% – they pay £95 now to get £105 in six months time.
Thank you
From Guardian Business today:-
“!O’Neill: bond markets would like to see action on ‘excesses of the triple lock’
Economist Lord Jim O’Neill has hinted that the government could rein in the pension triple lock to placate the bond markets.
Speaking to Times Radio, Lord O’Neill argued the Budget would have to include either spending cuts or “some form of tax increases” in order to restore the Government’s “headroom”.
Lord O’Neill suggested the bond markets would “respond favourably” to a Government that takes “credible action to deal with the excesses of the triple lock or the excesses of welfare spending”.
As we reported last night, the bond market sell-off could wipe out half of chancellor John Healey’s headroom to keep within the UK’s fiscal rules.”
I mean, what!?
In my view, and I may be wrong, all we are seeing is the gradual normalisation of long-term interest rates, which have hovered around 7% for millennia, I believe.
The trend for hundreds of years was for rates to decline. Now they are increasing. Why? Is this deliberate? I feel a video coming on…..
Interestingly, were you to replicate the basic state pension for 2026/27 – £9,614.80 – for a 67-year old with an RPI-adjusted annuity it would cost £166,298.86 today (Source: AMS/Standard Life).
Which is bigger than the average pension pot, by some way
But have you got the right pension?
I get 5 of the 7 points you make, but I struggle with the 3rd and 5th one.
About the 3rd:
So you want Direct monetary financing, I think?
Would be great, but wouldn’t this still need to be implemented so that a government is not dependent on bonds being sold?
I had the impression that’s a largely forbidden thing at the moment and that a government needs to issue bonds.
Or can those bonds simply be stockpiled as well for being sold later meaning that a Direct monetary financing exists already in a way?
About the 5th:
How would these tiered interest rate payments look like to make sure that they are in the interest of the most vulnerable?
Point 3: There is no international constraint on direct monetary financing to which we are currently subject. QE did it.
The Fed used “Direct Purchase Authority” from its inception until the fraudulent 1935 Banking Act, which was sponsored by… bond traders.
DPA was used without incident.
The full funding rule lets the bond market be the price makers and the government is the price taker.
We need to create more money and we need to be the price maker. We need to force the banks to hold our bonds via HQLA rules weighted towards Gilts.
And it only fully works with capital controls closing the exit which is a big ask politically.
Or.. we nationalise the banks.
Which is an even bigger ask.
Much to agree with
As you say the FT piece is a blatant claim that only the wealthy matter and to rub salt into the wound the peasants ( us the 95% of the UK population ) must pay for their increase in wealth by austerity etc.
I now, if inflation comes up in a conversation, ask how does Bailey putting up interest rates defeat inflation that arises outside the UK because of Trump’s war, Russia in Ukraine and so on?
Bailey has no control over Trump. People get that.
Then I say that all he is doing is creating a recession, where regrettably many will lose their jobs, pensions. Bailey will be ok because he earns £580k per year and the Bank of England ( the last time I looked) pays 50% of the staff salaries in pension contributions.
People get that as being very unfair.
The Treasury has now instructed the NHS reduce employer pension contributions to 15% of salary according to Peter Lilley.
It wonder if the Treasury will apply the same logic to their pension scheme or the MPs?
Your blog is excellent but Burnham will not implement it because he seems scared of the Treasury and the market.
Much to agree with
I’d personally advocate for something like CPI + X% as a more sensible commitment for pensions than the Triple Lock, because the latter has some obviously unviable scenarios (e.g. +2.5% during a deflationary cycle). I don’t think discussions around the Triple Lock are where the main potential harm lies – not compared to cuts to support for disabilities.
Where pensions should really be reformed, though, is to make the system less biased in favour of high incomes, and to consider whether it could be something of a safety net, too – e.g. adding some draw-down rules to allow some of it to be accessed due to unemployment, for example.
Rather than parrot ‘fiscal responsibility’, the FT would do well to surface ideas that open up discussion about existing structures and how they can be made more effective.
I’ve heard some suggest that the wealthy would be less against high taxation if they knew it was going to be well-spent, but where are the proposals for this? Or outline what the wealthy might want in return for doing more? Or how about changes that would benefit the majority as well (e.g. dividing income with non-earning dependents so single-income families don’t get a much worse deal than double-income households with the same gross income)?
One advantage of some of the discussion around Burnham and Polanski and their views is that there is perhaps a small increase in awareness that when those the FT is aiding get what they want, they just get richer. That’s it. They don’t spend more as they have everything they need. At some point the FT might realise that popular opinion is shifting away from them.
With reference to your comment that ‘the wealthy would be less against high tax if they knew it was going to be well-spent’… maybe all taxpayers might feel that way? So why can we not have hypothecated taxes-then we could all have a say in where our taxes were going?
Hypothecation is a technical impossibility .
One thought for any kind of very high income or wealth tax might be that it could be paired with some kind of official recognition of financial contributions to the country, with an option for those willing to give a similar proportion of income/wealth able to opt in to gain access to the group. A sort of ‘golden honours’, if you will.
If that has meetings and votes but no legislative authority, it might still be seen as giving additional influence to the wealthy, but to some extent it would be demanding that such forums would be public, too. There are already avenues to gain influence of varying levels of transparency, so the aim would be to secure a financial gain while additionally making things more transparent.
One part of that might be to include a vote on the priorities for the funding raised by this group, with the government still having the final say.
This is clearly open to the argument that it’s honouring people just for being rich (even if they stepped on others to become so). That may be true, but it wouldn’t change how people get rich. It might not be the right answer, but the point is to ask whether there is something that could be given in return for a new demand of the wealthy that would make it more accepted and reduce avoidance.
I have always disliked this idea – it has implicit in it the idea that they fund things – and they don’t.
An excellent and necessary post with some brilliant and well-informed following it.
Further, I had been thinking that speculators should be seriously discouraged before I got to ‘ Sixthly, the government could announce an inquiry into introducing a financial services tax that might include what is called Spahn taxation, which I explain in the linked glossary entry. This is a tax deliberately designed to tackle financial speculation by making it more expensive to undertake.’
My instinct is to want to drive the parasites out entirely.
Only tangentially related to this, but it was/is about the bonds business. The BBC are running a live commentary today (2nd Sept) because of it being Burnham’s first PMQs. Link here BBC nonsense
in which at 14:46 has an entry titled “Remind me, how and why does the government borrow money?” including “Governments borrow money either to fund investment in infrastructure such as new railways or roads – with the hope of boosting the economy – or to cover day to day spending.
The UK government gets most of its income from taxes. But it generally spends more money overall than the amount it raises in tax. To fill this gap, it borrows money, which has to be paid back – with interest.”
Why does it permit such nonsense? I’m nearly inclined to complain.
Do
Oh, Simon K, if only it was that easy.
Some time ago I had a long correspondence with the BBC over similar comments, even escalating my complaint. I see they have dropped one word from their explanation: it used to read, “the government *must* borrow” has now become “it borrows”. That shows the extent of my progress.
If you read carefully, the BBC’s statement is true, albeit being based on an implied falsehood. What I couldn’t get them to admit is that the “tax pays for stuff” narrative is incorrect.
So, good luck.
The FT writes:
“Whatever tools they use, finance ministries risk fighting wasteful and losing battles with globally interconnected capital markets.”
The above fits perfectly with David Graeber’s definition of neoliberalim:
“Neoliberalism isn’t an economic program—it’s a political program designed to produce hopelessness and kill any future alternatives.”
So it’s very helpful that you’ve so clearly outlined in this post multiple readily available tools to put these “globally interconnected capital markets” back in their box 🙂
Thank you.
I can take being compared to David.
The ruthless and violent minds of the rich should never be underestimated.
Tonight, on C4 News I watched Gillian Tett disgrace herself on TV basically making out that bondholders ruled the world and we had no choice but to make cost cuts (what is there left to cut can anyone tell me?) or put up taxes.
This same person who was so critical of the financial services sector behaviour during the 2007/8 crash seems to have forgotten all that.
An anthropologist by training, Tett gives her discipline a bad name. What an earth is she doing talking with such ‘authority’ about something she is not trained to talk about? Added to that, C4 News had no one on for an alternative opinion. Probably because in the main stream, there is not one is there?
In the spirit of Abby Innes and others who have noted capitalism’s similarity with authoritarian rule, the soviet communists got it wrong didn’t they with their gulag system to control people with fear. Too crude.
A more effective system of cruelty is to use the power of interest on money as a weapon of fear. This way you can maintain a false sense of freedom called ‘liberal democracy’ in the populace whilst effectively enslaving them with interest rates, austerity and the like. It is a very clever deception.
This is ersatz democracy as configured by capital. This is why I reject it. I have no other personal power other than to reject it. It does not matter what I comment here. What we are seeing is not democracy, it is the act of denying democracy in broad daylight every day that dominates our lives at present. It’s disgusting and disgraceful.
Tent does, apparently, walk on water, so no other opinion is required, per C4.
The water is, however, full of shit.
I can’t see much difference between “Bond vigilantes will eat you for breakfast unless you cut government spending” and Chicken Licken’s constant refrain about the “Sky Falling In” after an acorn fell on his head.
https://ia601606.us.archive.org/21/items/chicken-licken_202307/Chicken%20Licken_text.pdf
The two myths seem to occupy similar intellectual territory, a fact that increasing numbers of people OUTSIDE politics, press and broadcasting, have cottoned onto.
The moral of the tale is that everyone who believed Chicken Licken, and followed him, got eaten by Foxy Loxey and his ever hungry family, for their dinners.
Don’t be like Chicken Licken. Don’t confuse the bond markets with real life.
Maybe its time for “The Famous Five attend a Treasury Briefing” Ladybird series on Economics (but the copyright fees would be crippling).
George Monbiot has written today in the Guardian on the same them. He suggests Burnham is running scared of the wealth in this land, and doing so has already sown the seeds of his own destruction.
The bond markets have been getting away with dictating gov policy for far too long. It is undemocratic, to say the least . Many of the participants in the market are speculators or gamblers trying to make a fast buck out of the subservience of others.
Finally, I wonder what Jim O’Neil really believes. He has the same facts as the rest of us, leading to the obvious conclusions that Richard repeats every day. And yet, he cannot forget how he became so rich as a banker, so he cynically looks the other way. Shame on him and those like him.
I agree with George….
And, O’Neill, believes in protecting Jim’s wealth….
[…] Cross-posted from Richard Murphy’s blog developing a fairer and sustainable economy […]
Channel 4 News tonight had an interview with a young woman from the FT who said exactly the same things. I have emailed Channel 4 with an edited version of Richard’s article and an appeal that they at least allow discussion.
I think that was Gillokian Tett.
She will be pleased with the young bit
[…] Yesterday and this morning, I noted the FT's view that the poorest in our society must suffer an income loss to fund the interest they think is rightfully due to savers during these stressful times for the wealthy. […]