#234. Britain on the brink


Whether the country’s leaders know it or not, the United Kingdom is now at serious risk of economic collapse.

We must hope that this doesn’t happen. If it does, it will take the form of a sharp fall in the value of Sterling which, in these circumstances, is the indicator to watch.

A currency crash would cause sharp increases, not just in the prices of essential imports such as energy and food, but also in the cost of servicing debt. In defence of its currency, Britain could be forced into rate rises which would bring down its dangerously over-inflated property market.

This risk itself isn’t new. Rather, it results from a long period of folly, and can’t be blamed entirely on the current administration, inept though the Johnson government undoubtedly is. What we’re witnessing now seems to be a government on the edge of panic. The official opposition doesn’t offer a workable alternative programme, and mightn’t be electable if it did.

We need to be clear that the root cause of Britain’s problems is long-term adherence to an increasingly extreme ideology sometimes labelled ‘liberal’.

It’s one thing to recognize the merits of the market economy, but quite another to turn this into a fanaticism which judges everything on its capability of generating short-term private profit.

Extremism is divisive, and creates winners and losers to an extent that moderation does not. If solutions still exist for Britain’s worsening problems – and that’s a very big “if” – there are two reasons why such solutions mightn’t be adopted.

The first is that these solutions would anger a very vocal group of winners under the existing system.

The second is that those in charge would have to make a public admission of the failures of extremism.     

The practical problem

There are two main structural problems in the British economy, both of which are simply stated.

First, the economy operates on the basis of continuous credit expansion.

Even before the onset of the pandemic in 2020, Britain had spent twenty years adding £4 of new debt for each £1 of reported “growth” in GDP. The mathematics get even worse if we add broader financial liabilities, and unfunded pension commitments, to the equation. Where Britain is concerned, these broader liabilities are enormous.

Even this 4:1 ratio understates the grim reality, because the injection of liquidity creates transactional activity – measured as GDP – rather than adding value. SEEDS calculations indicate that, within recorded “growth” of £715bn (at constant 2021 values) between 1999 and 2019, only 30% (£215bn) was organic expansion, with the remaining 70% (£500bn) the cosmetic effect of borrowing at an annual average of 7.2% of GDP through this period.

This process is underpinned by the over-inflation of the values of assets, and principally of property. High and rising property values provide both the collateral and the confidence for perpetual credit expansion.

This is why successive governments have sought to promote, rather than try to tame, house price escalation.

Every initiative branded as “help” for young buyers has, in reality, been a device for propping up or further inflating the real estate market. At the first sign of a wobble in house prices, transaction taxes (stamp duties) are suspended. A property price crash is one of the nightmares that haunts the slumbers of British decision-makers.

It might even be contended, not without justification, that what passes for an “economy” has become, in reality, just an adjunct to an over-inflated property sector.

The second structural weakness is the permanent and worsening current account deficit. The United Kingdom consumes more than it produces. The system incentivizes people to make money – preferably through asset price escalation – rather than to produce goods and services.

A concept which has been described here before is the distinction between globally-marketable output (GMO) and internally-consumed services (ICS). In Britain, GMO has become dangerously small, such that excessive reliance is placed on ICS.

Hitherto, the structural current account gap has been bridged by the sale of assets to overseas investors, a process which has seen major companies, utilities and even football teams sold into foreign ownership.

This trend has become particularly acute since Britain ceased to be a net exporter of oil and gas.

Current account deficits, once embodied in the system and funded by asset sales, have become an autonomously worsening problem, because each asset sold to an overseas buyer sets up a new outflow of returns on capital to the new owners.

Self-created risk

The dangers implicit in this structure are clear.

First, a heavily indebted and credit-dependent economy is extremely vulnerable to rises in interest rates. This vulnerability has become acute now that the global rate cycle has turned upwards.  

As well as increasing the cost of servicing debts, rate rises threaten to crash asset markets, thereby taking away the collateral and confidence props required for the continuous credit expansion upon which the British economy relies.  

Second, overseas investors might start to wonder about Britain’s ability to cope with a steadily worsening structural current account shortfall, reasoning that there are limits to how long any economy can survive by “selling off the family silver” or relying on “the kindness of strangers”.

Additionally, of course, FX markets might fear a descent into chaos. The UK authorities’ approach to inflation looks – to put it charitably – like a product of blind panic.

Problems cannot be fixed by appointing a “tsar” and starting an ad-and-slogan campaign. There’s not much point in urging companies to hold down or even cut their prices when those companies’ own costs are soaring. Workers are unlikely to pay much heed when highly-remunerated officials urge the virtues of wage restraint.

It’s rumoured that, at the same time as increasing state pensions by 10%, the government plans to limit public sector pay increases to as little as 3% or even 2%. If this does indeed turn out to be the plan, chaos can be expected to ensue.

Britain could, of course, adopt what might be called a ‘5-5’ programme, setting 5% as a pay and pensions norm for the current year, with the rider that a further 5% increment will follow in the next year.

Funding this, though, would require major fiscal reforms which, whilst benefiting the young, would anger the (generally older) beneficiaries of the current system.

The clear and present danger now is that markets might decide that the dubious attractions of Sterling are far outweighed by the risks. A “Sterling crisis” would force the Bank of England into raising rates, crashing the property market to which the economy is, increasingly, an adjunct.

A crash in the value of GBP would trigger runaway inflation by increasing the cost of essential imports, including energy and food. Debts denominated in overseas currencies would soar, to a point where Britain could no longer afford to service these debts, let alone repay them.  

The ideology trap

Some, indeed many, of these problems and vulnerabilities are replicated elsewhere.

But what sets Britain apart is its long-standing adherence to an increasingly extreme ‘liberal’ ideology.

We’ve seen this over decades, with a succession of initiatives designed to translate taxpayer funds into private profits.  

Even those of us who favour the market over the state-run economy surely realize that there’s a balance to be struck between private incentive and the role of the public sector, and that any form of economic extremism tends to be both harmful and divisive.   

Taken to extremes, this version of ‘liberalism’ becomes the same system that sent small children up Victorian chimneys. That probably wouldn’t pay in the 2020s, but its modern equivalents – the “gig” economy, “zero-hours contracts” and the relentless undermining of security of employment – have all been warmly welcomed in Westminster and Whitehall.

Extreme liberalism has made the British economy, and British society itself, increasingly dysfunctional. The system is biased in favour of those generally older people who already own assets, and loaded against the generally younger people who aspire to accumulate them. It favours speculation over the creation of value.   

Perhaps the biggest problem of all is the extent to which the public has swallowed the propaganda of liberal extremism, an extremism which states that anything motivated by private profit must be superior to anything managed on the basis of the general good.

The problems of the 1970s are painted, not, as they in fact were, as the consequences of two global oil crises, but as the failures of Left-leaning governments and the malign behaviour of organized labour.

This is the same kind of myopia which remembers the Defeat of the Spanish Armada in 1588, but forgets the Defeat of the English Armada in the following year.

This becomes more pertinent when it is recalled that the debacle of 1589 resulted from efforts to turn a military expedition into a profitable enterprise. Floating a naval campaign as a quoted joint-stock company must have seemed as bizarre at the time as it does now.

If you’re interested in military history, you’ll know that the best of Britain’s trio of wartime heavy bombers were the Avro Lancaster and the Handley Page Halifax.

The danger now is that the name of the third one – the Short Stirling – might sound like an increasingly good idea to international investors.     

186 thoughts on “#234. Britain on the brink

  1. Hi Dr Morgan and fellow commenters,

    Despite the fact that emerging markets are now in real trouble due to debt repayments, does anyone else feel that it will be a sterling crisis in the U.K. that actually kicks off the real financial meltdown and reset that say Nate Hagens always talks about this decade?
    I welcome your input 🙂

    • A number of EM countries are at risk but, in most cases, this is probably containable.

      The UK is at particular risk. Bluntly, you can’t run an economy on the basis of selling each other financial services, pedicures and designer coffees, funding it by debt expansion, collateralizing that debt with ever-inflating property prices, and selling assets to overseas investors to finance the gap between production and consumption. Already in a trade war with Russia, the UK does not need a trade war with the EU as well.

      The political situation remains uncertain, not least with Mr J staying on, and some possible successors offering “tax cuts”.

      It’s not great having a budget deficit, or having a structural trade and current account deficit, but the big one is the reality deficit.

    • Its about contagion. In a hyper globalized economy, the lesser suffers the most pain in the early stages, the latter is a matter…

      …. first slowly, then suddenly.

      What was your first thought reading ‘ECB turned from yield curve control to yield spread control’.

      Doesn’t crap coming out of ‘democratic’ institutions ring any alarm bells?

      To me it does. It tells me the monetary parts of our system is falling apart.

      This is final stage misleading nonsense coming out of our ‘elected’ mouthpieces. It is worrying 2.0 if you really understand what is going on.

    • Yes, this is a good article.

      My view is that what’s coming is an affordability crisis.

      Unless the costs of essentials retreat significantly – very unlikely – then household affordability is seriously impaired.

      This puts downwards pressure on discretionary sectors, as people reduce spending on non-essentials. People struggling to pay for food, energy and necessary travel have less to spend on travel, leisure, gadgets and all the ‘want but don’t need’ purchases. If this becomes recognized as a structural problem rather than a short-term event, investors – and lenders – will start to back away from discretionary suppliers.

      There’s a parallel effect on the affordability of financial commitments – mortgages, credit, subscriptions, staged-purchases – all become less affordable within compressed household budgets.

      Affordability pressure is the real take-away from monetary tightening.

    • I note. Lyn Alden mentions Bitcoin as something to hold.
      Sounds like a very wise move as the great economic upheaval continues and the US dollar is eclipsed .

    • @Dr Tim,

      With one exception the references were of crypto currencies which are directly linked to the fiat world and in the parlance of the cognoscenti of the Bitcoin space are correctly referred to as ‘shit’ coins.
      These cryptos are not commodities which Bitcoin singularly is.
      He latterly mentioned Michael Saylor who is invested in Bitcoin but did not suffer to the same degree.

      Lyn Alden has excellent discussions on YouTube about Bitcoin vis a vis Central banks and on other monetary matters .

    • @jomelco

      Given what this site talks about, do you really think that the energy requirements to support BItcoin are essential? Isn’t it more likely that the internet will start to become unstable and suffer downtimes due to lack of stable spare energy (in the sense of energy is needed to make food and keep warm rather than wasted on the next cat video), and bitcoin will consequently be unobtainable and useless?

      But if you want to put your money into Bitcoin, have at it!

    • Gerry McGovern, based in Ireland, has been researching and advocating on the energy and resource use of the internet for over a decade. The energy and resource consumption of the internet, server farms and other electronic techologies has a massive environmental footprint – and it is growing exponentially. Indeed, in its present form, it requires exponential growth.
      As McGovern says in his latest post (today) “The tech industry drank its own Kool-Aid long ago. It believes that it lives in an ethereal Cloud, that everything is free or at least dirt cheap, that what it does is inherently a good thing so it should have no constraints on its behavior.”

    • Affordibility died with the introduction of fiat currencies and debt.

      ‘If you can’t afford it, borrow it’

      First slowly, then suddenly.

      Another crypto fork at the Table of Consequences won ‘t get you more soup.

    • Any monetary system – such as fiat – works for as long as it’s a realistic proxy for the underlying economy determined by energy, and ceases to work when it takes on its own momentum, and diverges from underlying prosperity.

      What’s happening now is surely crystal-clear. Aggregate prosperity has stopped growing, and has started to contract. The costs of essentials are rising.

      Both are functions of ECoEs – costlier energy pushes prosperity down, and simultaneously pushes up the costs of energy-intensive essentials.

      As this happens, affordability deteriorates. The scope for discretionary consumption contracts, and the ability to ‘keep up the payments’ (on mortgages, credit, subscriptions and so on) comes under increasing downwards pressure.

      The public – including investors, and politicians – don’t see this yet. Markets are demonstrating slow recognition of this process.

  2. Not sure if it’s something I did wrong, but when I did a search for ‘Surplusenergyeconomics,’ The WordPress site was nowhere to be found on Google, DDG or Quant .. only the old legacy site.

  3. @Richard

    The energy consumption to maintain the fiat system is way in excess of that required by the Bitcoin network. Besides it works in a deflationary manner and we will benefit from this feature for the transition from the fiat system.This is well explained in Jeff Booth’s book
    “The Price of Tomorrow” and by Saifedean Ammous in his books “The Bitcoin standard” and “The Fiat standard”. Both these authors had an engineering background .
    The problem seems to me to be that we have not yet managed to leave behind the analog concept of money which has been the basis of earlier monetary systems and transition to the decentralised blockchain peer to peer system of Bitcoin .

    I hope our host does not feel this is too off topic . If so I apologise.

    • Ultimately, physical resources (energy and commodities) will determine barter value. Whichever tokens/credits are accepted by those controlling the physical will likely endure. I’ve tried to teach our son and his wife about this, but with three sons, they can’t accept that the downslope has begun. They choose to focus on (fiat) retirement account values, and to live in a pretty, town neighborhood. I bought them the house around 8 years ago. I should have insisted upon a small farm with at least 10 acres of forest for renewable firewood. Now they refuse to move.

  4. Lyn Alden has just down a piece stating she believes oil will stay higher for longer than the market is currently predicting. https://www.lynalden.com/the-area-under-the-curve/

    I tend to agree with her on Bitcoin. While Wolfe writes some very good articles he focuses on ‘cryptos’ and like many conflate issues where these replicate the existing financial system rather than commoditise it which Bitcoin tries to do. Agree with Jeff Booths excellent book mentioned above

  5. When we’re discussing fiats or cryptos, my view is that we need to draw a clear conceptual distinction between a ‘real’ or material economy determined by energy and a ‘financial’ or proxy economy of monetary claims on the material economy.

    This makes prices the point of intersection between the material and the financial (where a financial number is attached to a physical product or service), meaning that price changes (inflation, deflation) are products of changes in the relationship between the two economies.

    It’s up to you, of course, whether you accept ‘the concept of two economies’ but, for me, it makes sense of a huge amount that orthodox, money-only economics fails to explain.

    This makes cryptos a new and unregulated form of claims creation. They are investments, not money.

    This difference is critical.

    Monetary sovereignty is a vital component of national sovereignty. The term ‘seigneurage’ descibes governments’ imperative need to ensure a monopoly of money creation which, in return, is backed by the ‘full faith and credit’ of the state.

    Governments are obliged to defend their currencies. They are under no such obligation to defend cryptos. Moreover, if cryptos ever became a rival to national currencies, governments would have no choice but to bring them within the fold of ‘seigneurage’ by regulation.

    This comes down to a debate about the value of cryptos as investments, not as rival forms of money. The value of an investment – in, for example, company X – may outperform the value of money, making it a good investment. A personal view is that the balance of risk/return is weighted against cryptos.

  6. Wolf Street on Currencies and Inflation

    Wolf gives us a good narrative supporting his view that inflation in the US will be increased over the next year or so as the dollar falls against other currencies. I don’t think he gives us a “complete’ story, since he doesn’t link currencies to the underlying productive capacity of the global economy. If the sum of global currencies, whatever their relationship to each other, are capable of buying less, then the picture becomes much darker than merely figuring out which currency is up and which is down and trading accordingly.
    Don Stewart

  7. Dr Chris Martenson last week published a video presentation in which “surplus energy” features – from about 9 minutes onwards:

    • What Chris has done (or at least tried to do)
      What is the marginal cost of reliable energy to fill in the gaps in solar and wind? What is the marginal value of a reliable energy system to human civilization?

      A traditional economics textbook graphics will tell us where, and if, the curves intersect. But suppose (as a thermodynamic model assuming a fixed production system might show) that there is no intersection. E.g., the current production system is incapable of generating enough surplus to pay for the incremental energy. That was the conclusion of Short on Oil’s model 5 or 6 years ago. If there is no intersection, and if the marginal cost of energy cannot be lowered, then the production system as it exists today must either be systematically dismantled or allowed to collapse. We should note that the US, having relied heavily on the Petrodollar, is pulling out all the stops to insure that the US gets whatever it needs to run an economy based on unlimited spending, including by far the largest military in the world. But suppose, as Martenson suggests, that the Rest of the World has decided to stop obeying. If that is the most likely scenario, then a Sri Lanka magnitude collapse is not out of the question. Or else a military confrontation which might kill all of us.

      I don’t know if it is possible to solve the SEEDS model for marginal values and costs, but such a calculation would be an invaluable addition to our thinking.

      Don Stewart

    • What SEEDS is highlighting now is an enormous gap between reality and collective perceptions. This is characteristic – though at an unprecedented scale – of the pre-crash period which immediately precedes recognition of the new reality.

      Latest revisions to the model – in summary, the outlook is getting worse – reinforce a narrative that is becoming more apparent and more stark over time.

      You’ll know the main lines of this. The availability of surplus (total less ECoE) energy to the economy is contracting. Important though renewables are, the idea that they can provide a like-for-like quantity and value replacement for fossil fuels is a non-starter. On the one hand, prosperity erodes. On the other, the cost of energy-intensive essentials carries on rising. Accordingly, discretionary consumption falls, and so does the affordability of payments (mortgages, credit, subscriptions, staged-purchases and so on).

      The question becomes – when does recognition occur? Once they know what the trends are, why would anyone invest in – or lend to – anything discretionary, or anything dependent on streams of income from households?

    • @drtimmorgan,
      Keeping an eye on the UK presently, not withstanding continued unrest in France & Holland, it would appear no one of significance in any of the main UK political parties have an actual clue what is really happening – an issue Tim Watkins has again highlighted in his latest post.

      Suffice to say, with up to a dozen austerity loving contenders for the Tory throne and austerity loving Keith Starmer & Rachel Reeves show strutting its stuff I can only concur that the UK economy is doomed and that its demise may well follow that of Sri Lanka.

      Add Ukraine into the mix and EU/UK/USA sanctions against Russia, the worst coming into effect at the end of December, its easy to see significant unrest in the UK come the end of the year – obviously, if the average cost of Electricity & Gas now expected to reach the £3,600 a year mark, made worse by vendors splitting monthly payments between peak and low demand months, many folks come October may be paying £500 a month for six months and then £100 a month for the other six (an issue not usually focused on), this being a major chunk out of the average consumers wallet, and that’s before further increases in the cost of a gallon of fuel.

      It does indeed look bleak, alas, allegedly our elected politicians have the answer. Well, they may have answers but they ain’t the answers to what ails our economies and until they realise this fact one expects zero change as we head off a cliff.

    • For any politician, there are two challenges – finding the correct interpretation and the right policies, and then getting the voters to support you.

      I agree with Tim W’s description of the UK economy as a basket-case, but I don’t pin all the blame on current politicians, even though they are pretty clueless. Britain has followed the wrong economic model for far too long, and the voters have embraced this nonsense every step of the way. Obsessive liberalism has been damaging, not just economically, but socially and psychologically as well.

      The tax debate typifies this mess, remembering that the candidates for PM are wooing the votes, not of the population, but of Tory party members. The idea of overall “tax cuts” is crazy, if you look at the current and looming state of the public finances. The least bad solution would be for some to pay less tax, but others to pay more. But the latter are likelier to be Tory members, which takes the idea of rebalancing out of the realms of ‘practical politics’, at least for the moment.

      The point of crisis is going to be a slump in the value of GBP. That, at the very least, would make existing problems very much worse. It could put an end to reliance on asset sales to cover the trade and C/A deficits, because who would want to buy assets in a collapsing economy?

      But I don’t think even that would shock the public – and Tory voters specifically – out of their combination of rabid self-interest and blind complacency.

  8. @Dr. Morgan
    I believe we are at the point where a system of differential equations is no longer a useful tool to think about the future:
    “In mathematics, a differential equation is an equation that relates one or more unknown functions and their derivatives. In applications, the functions generally represent physical quantities, the derivatives represent their rates of change, and the differential equation defines a relationship between the two.”

    I suggest that rates of change along already well-trodden paths is not in our future. Somehow, we need to get all of the balls up in the air and let them fall into some new stable pattern. One way to do that is with Science Fiction. But the science fiction required is not filled with hyper-drives and worm holes but instead resembles Kunstler’s World Made by Hand novels.

    I now see the error of my ways trying to calculate marginal costs and marginal values. We are not in Margin Land anymore, according to Dorothy.

    Don Stewart

    • I presume this debt is how we in the U.K. are currently keeping up growth in May of 0.5%! One last summer blow-out! Lol

    • Apparently a large chunk of the growth is because we are seeing our GPs more. How this makes sense as a productive increase to the economy is anyones guess! Bit like breaking all your windows and replacing them increases GDP.

    • I’ve not looked at the latest figures in detail, but one has to adjust them for increases or decreases in fiscal support in order to see what’s really happening.

      During the 2020 crisis, British GDP dropped by 10%. But this number includes a huge increase in the deficit. For illustrative purposes, if government had borrowed no more in 2020 than it had in 2019 (i.e. nil fiscal change), GDP would have fallen by 20%, not 10%.

  9. How trade has shifted over the last two decades:
    scroll down to the map, reprinted from The Economist. No doubt about the rise of China and the decline of the US as a trading partner.

    It’s obvious why the US would want to use NATO to try to reverse the rise of China. But much of Europe is now trading more with China than with the US. Why would Europe go along with the plan for NATO to expand to the Far East? It seems to me that Europe can’t figure out which side its bread is buttered on.

    Also a headline from The Onion: “Supply chains have been optimized to a guy named Greg who is doing his best.”

    Don Stewart

    • Indeed.

      Over a number of years, I think we here have learned a lot about the economy as an energy system. Those in charge seem to have learned nothing at all. Time for the learning curve is fast running out. I suspect that an affordability crisis – ‘can’t afford discretionaries, can’t afford to keep up the monthly payments’ – to impact later this year.

      In the UK, I’d bet that the leadership candidates – whom I call ‘Realistic Rishi and the seven muppets’ – have never heard of ECoE.

      I’m planning a detailed overview here, using latest SEEDS data, ASAP.

  10. Re: Carey King
    He published this book just as the Pandemic distracted everyone:
    The Economic Superorganism
    Beyond the Competing Narratives on Energy, Growth, and Policy
    Authors: (view affiliations) Carey W. King
    Outlines the five global economic trends that must be addressed by any holistic and meaningful policy for a sustainable future
    Empowers readers to question promises of more economic growth and income equity without specific policies to distribute income more equally
    From “drill, baby drill” to claims that “solar costs inevitably decline,” King explains how techno-optimism enables both fossil and renewable advocates to speak past each other

    Just as an item of interest, he re-tweeted a discussion about Henry Ford’s proposal to make energy the basis for money.

    Don Stewart

  11. A short article by Carey King outlining the challenges, but also necessity, for a Limits to Growth type approach to our systemic challenges:

    He makes the point that oversimplified knee-jerk narratives have obvious appeal, but are not adaptive in the long term:
    “Unfortunately, most narratives don’t serve all three purposes effectively. A narrative around an economic theory can help facilitate conversation by creating a common vocabulary (the first purpose of narratives), but that narrative might inhibit accurate explanation of the natural world around us. Some problems with economic policy derive directly from the fact that our economic narratives, perhaps useful for belonging and norms, are not useful in their ability to describe how the world works.”

    Don Stewart

    • Interesting. Right now, though, I’m not looking too much at the psychology of things, and I’ll explain why.

      Prosperity is deteriorating – right now, and I know all of us here know how to look beyond ‘GDP’ to see it. The costs of essentials are rising – again, right now. These aren’t temporary events, but embedded trends. Hardship is worsening wherever you look.

      The right term for this is an affordability crisis, rather than simply an inflationary one.

      What people can afford to spend, beyond the necessities, is tumbling. Bad luck for discretionary sectors.

      Households are, increasingly, struggling to ‘keep up the payments’ – mortgages, credit, insurance, subscriptions, staged payments, you name it. Large parts of the corporate and financial system depend on the continuity and growth of these financial flows from the household sector.

      Go through the sectors affected by discretionary contraction or deteriorating payment streams and you’ll see it’s at least half the economy.

    • @Dr. Morgan
      Richard lives in a relatively affluent area in Northern California. Yet over the last decade or so, the number of homeless people has risen relentlessly. There are now miles long rows of shanties along streets where people can erect the shanties on the sides of the roads. Meanwhile, those who still have money are flying in record numbers so that there is a crisis in airline ability to handle the crowds. An experienced airline stewardess wrote an article yesterday giving people advice about how to avoid the worst of the crush, coupled with a list of the 10 worst airport situations in Europe. People living in beach communities in Southern California are upset about the number of homeless who now camp on the beach. So we are living in a schizophrenic world: those for whom the ability to make reliable airport connections and enjoy a stroll on the beach is a really big deal and those for whom a roof over their head and food for their belly is the daily reality. I see Richard’s message as being aimed at those who drive past, or walk past on the beach, the daily reminders that it is all so fragile. The overwhelming psychological reaction is that things are bad but there is some devil behind it all: the liberals, the illegals, the right wing, etc. Richard’s message is that it is systemic…it’s going to happen, and those with a peculiar kind of attitude are more likely to survive it and perhaps be of some benefit to their fellows.

      That doesn’t mean that warnings about the leverage which is suddenly working against many people are misplaced. When the Bank of Canada raised interest rates by 100 basis points, that had a near term impact on monthly payments for lots of people. And given the fragile financial situation of lots of people, the result can be disastrous. The chaos in Sri Lanka is a reminder of the severe psychological stress and, very likely, the eventual dysfunctional behavior which will result. Those who survive will likely be those who had some of the cautious pessimism that Richard describes. All IMHO.

      Don Stewart

    • “What people can afford to spend, beyond the necessities, is tumbling. Bad luck for discretionary sectors.”
      So, a return to the “frugal comfort” of austerity. Well, a return for those of us old enough to remember wartime and post-war austerity. Less landfill, more patched clothes, fewer gourmet delicacies, fewer overseas holidays, more (hand-knitted) beanies and lap blankets inside, NO takeaway meals.

      Can Millennials handle it? One thing I notice is that Millennials are – so far as I can tell – absent from this foum, and from the social media discussion of these topics. A generation with its head in the sand.

    • We’ve been accustomed to a dynamic whereby prosperity increases more rapidly than the costs of essentials, thus increasing the scope for discretionary consumption. Simultaneously, household financial commitments have extended far beyond the traditional situation, where these commitments were largely limited to a mortage or rent.

      This is now unravelling. The costs of living are rising faster than prosperity. Discretionary consumption has entered a decline trajectory.

      Most people can, I think, cope reasonably well. They can find less expensive ways of enjoying their leisure time.

      But the industries supplying discretionaries can’t cope with this kind of shift. Neither can those parts of the system which depend on people “keeping up the payments”.

  12. Forbes article:
    Another day, another onslaught of flight disruptions for air travelers. Even before 9 a.m. Eastern Time, airports around the world were already tallying more than 10,000 flight delays and 1,700 cancellations, according to FlightAware tracking data. Those number could easily double by day’s end.

    Nearly four in five travelers (79%) who have taken an overnight trip outside their local area this year have experienced at least one travel-related issue, according to a new Bankrate.com survey. These issues include high prices (57%), long waits (29%), poor customer service (27%), hard-to-find availability (26%), lost money due to cancelled or disrupted plans (14%) or something else (4%).

    With the July Fourth holiday weekend now in the rearview mirror, Asia and Europe have emerged as hubs of air travel nightmares, with flight cancellations and delays surpassing the levels seen recently in the United States, demonstrating the global headwinds faced by the air travel industry.

    My note: this is not the desperate world of people being thrown out of their houses as rents increase. That may come in August or over the winter or never, but we currently live in a schizophrenic world.

  13. Richard on July 13, 2022 at 5:32 pm said:

    Apparently a large chunk of the growth is because we are seeing our GPs more. How this makes sense as a productive increase to the economy is anyones guess! Bit like breaking all your windows and replacing them increases GDP.


    I can’t see how visiting the doctor changes GP in the UK or Canada. They have a tax-funded system free at the point of use that spreads costs over the entire population.

    Yes, in the USA or indeed Switzerland, more ill people should increase GDP. Extra consultations with a medic. at $200 a visit = more turnover/profit for the medic … and presumably more misery for the patient.

    Domestic washing machines that only last 6-7 years, instead of 20-30, certainly increase GDP and reduce quality of life because of the inconvenience when they go wrong/wear out. What an inept economic system.

    • GPs in England/Wales (not sure about Scotland as the NHS is a little different), are “paid” for seeing patients – not by the patients, but by the state. It’s a kind of privatisation, an internal market. The idea is that GPs have an income they can use to “buy” services from other health providers (like hospitals) for medical care they can’t provide themselves.

      So after Covid, GPs are now seeing more patients, hence more income, hence GDP increases.

      No it doesn’t make sense, it is artificial, and is just a stepping stone towards making the NHS so bad that people will increasingly vote with their wallets and go private, until the Gov can turn around and say – look no one wants free-at-the-point-of-need anymore, lets save our NHS spend and you all just get health insurance like the amazing US.


  14. Pingback: #234. Britain on the brink – Olduvai.ca

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