I’m So Bored With the USA: “Money Too Tight to Mention” 

 

I have found myself struggling this last week to understand why we appear to be such a poor country. I look  at Germany with their €500bn infrastructure fund, the former Biden administration had their $500bn Inflation Reduction Act, and we struggle with half-baked projects such as HS2

 

Chancellor Reeves is reported to now have a £15bn blackhole; is this a new hole? Or, is it in addition to the previous £22bn? 

I know that the past 25-yrs have thrown-up two black swan events, the GFC and Covid, but they were global events, and others have managed. 

In the past 15-yrs austerity has become a part of the UKs reality, and, in-spite of what Messrs Starmer and Reeves might chose to describe it as, it isn’t going away. Britain, we’re told, must tighten its belt. Cuts and belt tightening are, they tell us an avoidable necessity. There is no money.  

The truth is that austerity was, and still is self-imposed.  The autumn statement contained £190bn in promised extra spending, £140bn in additional borrowing and £35bn more in taxes than previously forecast. In the Treasury opinion this isn’t austerity. 

This glosses over what I would describe as, use of funds. Are they used to support economic orthodoxy or social needs? 

I recently read a report that we are spending >£100bn a year on debt interest (a postwar high) driven in large part by the BoE losing large sums of money offloading the gilts, bought during quantitative easing (“QE”) (1). 

The Treasury must cover those losses, while the flood of gilts drives up interest rates on new borrowing. This is quantitative tightening (“QT”), with the state left to foot the bill for soaring interest costs and Bank payouts. (1) Yet the Office for Budget Responsibility (“OBR”) assumes that it will continue, locking in high costs. 

 

‘money that should be funding public services is being siphoned off into the pockets of bondholders, rentiers’

 

As a result, money that should be funding public services is being siphoned off into the pockets of bondholders, rentiers. Despite what minister claim, this isn’t prudence it is simply ideology, which will only increase inequality. Stopping QT would provide substantial funds for public services, but, as seems inevitable, our governments priorities are reassuring markets with symbolic gestures at the expense of those in need. 

There are in-built provisions that allow government to the BoE independence in “extreme economic circumstances”. This clearly is extreme circumstances. In addition, the BoE is the only central bank within the G7 that is actively selling bonds and demanding Treasury cash to cover paper losses. Prior to Gordon Brown giving the BoE independence in 1998, chancellors such as Kenneth Clarke often ignored their advice. Todays’ orthodoxy would regard such actions as heresy, there is a locked-in belief that central banks  independence is sacred, no matter what the outcome. 

Orthodoxy seems to be the order of the day. The chancellors self-imposed constraints prevent her from imposing a wealth tax, relaxing her fiscal rules or borrowing more. If you add to that her deference to an unelected monetary authority we have illusory necessity.  

Some more forward thinking, or, perhaps just traditional Labour MPs have floated a wealth tax, doing so in the knowledge that they risk the wrath of a leadership that doesn’t tolerate dissent. This is nothing new and has been talked about in other countries, and at OECD level. 

In 2020, a team of accountants, economists and lawyers set up a Wealth Tax Commission, which  proposed  a one-off wealth tax on millionaire couples for five years that would raise £260bn. One in 14 households would have been caught by the proposed tax. 

Another solution, and equally taboo would be to rejoin the EU. 

 

‘Starmer and Reeves are obsessed with growth, but they refuse to discuss the monumental sums that Brexit has cost the economy’

 

Messrs Starmer and Reeves are obsessed with growth, but they refuse to discuss the monumental sums that Brexit has cost the economy. Estimates vary, but the Centre for European Reform (“CER”) sets our losses at 5% of GDP. That’s a vast sum: 1% of Britain’s GDP is worth £25.6bn. Goldman Sachs’s calculations are similar. Researchers at the London School of Economics found that the UK lost £27bn in exports to the EU in the first two years; the OBR estimates Britain has seen a 15% reduction in trade. 

In response, the Policy Exchange, a pro-Brexit thinktank, tried to find some positive statistics. Their report, “Less Than Meets the Eye”, was more an exercise in damage limitation, concluding that the OBR’s 15% trade reduction was “greatly exaggerated – and that the real impact is only a small fraction of what has been assumed”. 

The spring statement was a charade, a performance based solely on internal dogma. Messrs Reeves and Starmer hide behind tough decisions but, in truth, its only their self-imposed priorities. They are just continuing a played-out economic model that prioritises assets over investment has failed. 

Post-Trump’s inauguration the world has changed, even the chancellor has acknowledged that. Whilst she might recognise this point, she is doing little about it. Even the electorate can see the harm Brexit is causing; 54% of Britons who voted leave, including 59% of voters in “red wall” seats, say they would accept free movement for UK and EU citizens in exchange for single market access. 

All too often we hear Labour quote the Truss/Kwarteng debacle. Most recently, in an interview with the BBC, the chancellor, said: “It wasn’t the wealthiest who lost out when Liz Truss lost control of the economy, it was ordinary working people.” 

In a 2018 pamphlet entitled “the Everyday Economy”, written after Labour’s better than expected showing in the general election a year earlier under Jeremy Corbyn, Reeves called for “a radical overhaul of the tax system because our current system of wealth taxation is not working” and suggested that “old and new monopolies need to be broken up to ensure that markets are competitive”. 

‘the promise of change isn’t happening, and the government has no idea how to turn things around’

 

However, once in government, with the exception of IHT on farms, a wealth tax has fallen off the radar, and the chair of the competition regulator was forced out in part because businesses had complained. 

There clearly has been a seed change in Labour thinking. If there was a watershed moment it was likely the Hartlepool byelection defeat in 2021, and the increasing influence of Morgan McSweeney, who clearly doesn’t believe the old socialist Labour is electable  

What’s becoming increasingly clear is that the promise of change isn’t happening, and the government has no idea how to turn things around.    

The chancellor can point to the increase in the minimum wage, but that is merely a sticking plaster. A full-time worker on the minimum wage means a person is nearly £10,000 below the annual net income, calculated by the Joseph Rowntree Foundation as necessary to secure an acceptable standard of living. 

The above-inflation pay rises sanctioned by the government haven’t altered the fact that wages remain so low that 37% of people having to claim universal credit are actually in work.  

All the new money for the NHS is being drained away by the strains placed on it as disabled people find they are unable to cope with reduced levels of support. included within this are elderly people without adequate physical care and younger people without mental health support. 

By the time of the next election, according to the Joseph Rowntree Foundation, all households will have suffered a fall in living standards, but the poorest will be hardest hit. 

 

‘wages remain so low that 37% of people having to claim universal credit are actually in work’

 

Instead we had a spring statement that is likely to leave an additional 250,000 people in poverty. All of this, under the rule of a party founded to represent the interests of ordinary people. 

The May local elections will be very revealing. The Tories are already managing expectations down, and, as was highlighted in “Low’, Reform look likely to be the big winners. 

Labour is becoming just another austerity party, providing the negativity that populism thrives on. As I have written before, populists are good at telling people what is wrong, but they have little in the way of  rational economic policies. They are simply an anti-establishment alternative, posing as the defender and voice of the working class, and providing the left behind with scapegoats; immigrants, wokeism and even some corporations. 

In January 2021 I published a piece entitled “Beginning to see the Light – Background” which was an introduction to the new column. In it, I explained that I planned to major on what I believed to be the biggest issue facing us, the wealth gap, that has created such an unequal society.” 

I also talked about the increase in nationalism globally, which has led to countries imposing tariffs against exporters such a China. This increase in nationalism led to populist governments being elected in countries such as the US, UK, Brazil, Russia, and India. And, with nationalism comes racism.  

I concluded that we would see more societies fraught with divides, old and young, racial, and gender divides. All of which are largely driven by inequality. The true divide is between haves and have-nots. 

It is inequality that has led to Trumpism, enabling him to exploit an unhappy electorate. He doesn’t offer solutions only enemies offering-up someone to blame and unite around, just as we saw with Brexit.  

 

‘Populists succeed because there is the need for deep changes across their society’

 

Populists succeed because there is the need for deep changes across their society. Trump’s campaign, as clever and modern as it might have been, succeeded because the Democrats failed. As identified in “Darklands” the Democrats didn’t understand that the economic prosperity that had delivered had stayed at the top; the few prospered whilst the majority got poorer 

My intent in “Beginning to see the Light – Background” was to highlight how inequality, whilst increasing from 1980 onwards, accelerated dramatically following the GFC. The policy of zero interest rates and QE saw inequality increase exponentially “as the mispriced cost of money made risk look cheap. That factor propelled the massive stock price rises of the 2009-2024 bull market”. 

This manifested itself in the performance of the US economy compared to the S&P 500.  

Between 2007-2023 the US economy grew 91% from $14.5 trillion to $27.7 trillion, whilst the index rose by 497%; 5x the growth of economy!  

All this equity growth stayed at the top. 

CEO pay increased 1,209.2% from 1978 to 2022, according to an analysis by the Economic Policy Institute, compared to a 15.3% rise in typical workers’ pay. 

From 1979 to 2022, wages for the top 1%of wage earners in the US rose by 171.1% compared to 32.9% for the bottom 90% of wage earners. In the same period, the share of total earnings for the bottom 90% declined 8.8% while it increased for the top 0.1% of earners by 4.6%. 

Billionaires alone have gained $2.7tn since March 2020. According to a 2020 report published by the Rand Corporation, the wealthiest 1% in the US have taken $50tn from the bottom 90% in recent decades. 

Wages have failed to keep up with productivity growth: from 1979 to 2019, net productivity for US workers increased by 59.7%, while typical compensation for a worker only grew by 15.8% in the same period. The median worker would have made an extra $9 an hour if the rates had grown together 

The federal minimum wage has remained $7.25 an hour since July 2009, the longest period in the minimum wage’s history without an increase, and it’s worth 29% less today than 15 years ago. 

What we are seeing in countries such as the US and UK is the starting point for next financial crisis. Western Democracy in its current form as out of control state spending, infrastructure projects, and massive unsustainable health, social security and welfare programmes, and ageing demographics create unfixable problems.  

‘What we are seeing in countries such as the US and UK is the starting point for next financial crisis’

 

One of the better sources of research in inequality is the Equality Trust. In a report timed to coincide with the election of the new government last year, they wrote: “Biased public policies and flawed economic systems are serving a few wealthy people at the expense of the wellbeing of people and planet”. 

 

“I could sleep for a thousand years
A thousand dreams that would awake me” 

 

 

Notes: 

1. QE came into effect post-GFC when central banks started buying bonds that banks were holding, with the intent of providing an economic stimulus. The BoE is now unwinding these bond holdings, but, as interest have increased the bid price has fallen. This means the BoE is incurring losses that have to be made good by the Treasury, which means you and I.  

 

https://www.theguardian.com/world/2025/mar/25/danish-pm-mette-frederiksen-condemns-us-pressure-greenland-visit 

 

 

‘This week it’s a largely UK centric piece, centred around austerity and our seemingly total lack of money.

This clearly isn’t a Labour government. Starmer, et al are Tories in drag, offering  the same tired, out-of-date, failed solutions.

They have no interest in tackling inequality, and seem terrified of upsetting rentiers. I can only assume they are looking to what their next job will be when voted out of office.

And, being voted out looked increasingly likely, I doubt any government will have lost such a sweeping majority so quickly.

Inequality is at the heart of this. We haven’t learnt the lessons of Brexit, just as the US didn’t learn from Trump’s first electoral success.

 

Over in Trumpton the madness continues:

 

·       Tariffs on car imports, presumably to protect Musk’s faltering Tesla.

·       Musk appears to be laying the groundwork to privatize some space and satellite operations now under the authority of National Oceanic and Atmospheric Administration (Noaa), or steer lucrative contracts toward his SpaceX and Starlink companies, former agency employees say.

·       War plans are discussed in open chat on messenger apps which journalists copied in

·       Next week promises “Liberation Day” when a whole raft of tariffs are expected.

·       VP Vance is on an uninvited trip to Greenland which can only serve to worsen relations with Denmark

 

Enjoyment is relative; as much as I am enjoying the US falling flat on its face, I can’t help feeling that we are missing opportunities. Starmer and Labour are such disappointments; tired old Tory policies, uninspiring orthodoxy, making the poor pay. Perhaps his only hope is standing-up to the US, tariffs et al….more disappointment beckons, I fear.

Lyrically, we start with “Money Too Tight to Mention” by Simply Red and end with the Velvet Underground’s “Venus in Furs”. Enjoy! Philip’

 

@coldwarsteve

 

 

 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

 

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