We need to get a grip
We rely on strangers – I seem to remember these words by Mark Carney, a former governor of the Bank of England. What has been highlighted in the past few weeks is how fragile the whole economic model is and how it relies on confidence. You cannot buy or touch it, but things get more challenging without it.
We are in the eye of a self-made storm. The scriptwriters of the 1970s sitcom, Yes Minster, could not craft this one. Macroeconomics goes hand in hand with living in a world greenhouse, and the dynamics are the same in both cases.
Firstly there is fragility, regardless of whatever politics fill the mix. Secondly, experience is too commonly ignored. Greed or narrow self-interest takes over.
Let me show an example.
When I was at school, sensible economics meant the banks lent 12 times the deposits they held, which then turned out in 2008 to 100,000 times the deposits and that’s when it failed, we found out the hard way. Now we find the use of derivatives LDI has caused a significant issue within the Gilt market. I advised on gilts over the years, but in reality, we turned a page. The mini-budget was an unfunded dream. The reality, we as a country have overborrowed, and we fund that through gilts or IOUs. When you interfere with the cycle, you have a significant issue and government spending either has to be cut or taxes go up, or we find a new source of wealth The saying is there are only two things certain in life, death and taxes.
I am no economic guru, but something different has to happen.
Firstly government needs to function: we have HMRC unable to have a minister sign some major issues with Making Tax Digital. As result the software being written cannot be adequately tested, we have this already with their pilot.
Secondly, the independent Bank of England needs some harsh words to the Treasury so neither makes a gaff. The current Governor also needs to watch his utterings.
The big picture is not good; it’s a significant problem Do I feel depressed? No. Do I feel that it will sort itself out quickly? No, we are all in this for the long game. We need more effective Realtime Watch Dogs in the Financial Service Authority regulating banks and substantial penalties for pushing the edge.
The Bank of England and the Civil Service need to make sure the politicians follow the standards and have a basic understanding if they fail to do that, it upsets the apple cart and what that means in real terms.
We don’t live in a bubble; you cannot apply household economics to a country’s model. We rely so much on strangers outside the country for their money and support in all ways. We must restore confidence.