Is the UK actually broke?

There’s a bit of an awkward situation coming for Labour supporters…

Rachel Reeves, the UK Chancellor who heads up the economic policy, has basically said the UK is broke…

The ‘difficult decisions’ she is referencing there are tax rises and likely, spending cuts.

But wasn’t the Labour Party elected on a ballot of making everything better and fixing things and giving the UK economy sunshine and rainbows?

Well, yes, it was — which is why this is now a very awkward situation.

But is Rachel here even right in what she is saying about there being a ‘fiscal black hole’?

Well… no.

It’s lying and gaslighting of the highest order.

See, this is merely a play on the stupidity of the electorate.

All of the information on the UK’s finances are well known, and we have some of the best data globally on what our financial standing as a nation is.

So what is this ‘black hole’ that is being referred to?

Well, no one really knows, but in short, it’s to do with arbitrary rules that have sprung up from the Office of Budget Responsibility which was made in 2010 by…

George Osborne, then Tory Chancellor.

The whole situation is really quite funny.

Here you have a Labour Chancellor who is continuing the legacy of the Tories and literally pushing a policy of austerity, while pretending she wants the private sector to take up the slack whilst…

Raising taxes?

Does she think everyone is stupid (yes she does)?

Let’s take a look then at why the UK’s finances are not ‘bad’.

Let’s start with Genesis

The OBR.

Who even are these people?

Do they have relevance?

Why are we governed fiscally by an independent body to the Treasury?

Who even is the government anymore?

The irony, as already mentioned, about the OBR is that it’s an inherently austere institution, which in my view is simply an extension of the EU’s Excessive Deficit Procedure.

There is no surprise it was created since the UK was ‘sort of’ exempt from financial penalties from the European Commission if they breached the Excessive Deficit rules.

Rather, what Osborne, the Europhile, did was bring the rules in house (this is my conspiracy but it makes sense if you feed it back through time).

So the irony now is we have a Labour Chancellor who was elected on a ballot of reversing the last 14 years of Tory despair, now…

Continuing said Tory despair?

It’s actually laughable.

See, the UK’s deficit to GDP is actually low by historical standards.

Post GFC, we were sitting at a massive deficit of 10% of GDP…

Now, that deficit is 4.4%…

In a world where other nations have deficits of 5.5% (France), Germany has one of 1.75% with nearly a trillion of debt sitting off its books outside the budget (fraudulent — one of the grandest cover ups that has ever existed), United States at 6.6% of GDP and others with similar amounts.

It’s very strange then that Reeves is pushing forward with this at the behest of this body, which quite frankly, has never gotten a forecast right in its life, outside of some OK metrics at public sector net borrowing, which let’s face it, no one really cares about anyway…

What the real issue here is, is that Reeves is terrified of the trial by media — she doesn’t want a repeat of Truss.

But this is because the media and general public doesn’t understand things.

It doesn’t understand the issue with September/October 2022 was to do with Liability Driven Investments and poor oversight from the Bank of England…

It doesn’t understand that in January 2022, interest rate benchmarking moved from LIBOR to SONIA, the new measure, which takes some getting used to…

Amidst the fastest hiking cycle in decades…

After governments had increased debt loads post COVID to HELP people…

Nor does it understand the issue with the Treasury indemnifying the BoE’s bond losses, of which the OBR would have feasted on because it would give more credence to the idea that fiscal expansion is bad (remember, the genesis of the OBR is founded upon austerity)…

It further doesn’t understand the pound plummeted during mini budget week because the Fed hiked MORE than the BoE 2 days before the Friday…

It further doesn’t understand that banks had started pulling mortgage offers in the August, not the September, giving rise to that sort of Monopoly Monocle Paradox where people reckon the Monopoly Man has a monocle when he doesn’t…

The solution here is to seriously revisit our institutions.

Why do we have an OBR and why is so much credence put on what they say?

It is the Treasury’s job to make these judgements…

Further, what calibre of politician do we have which leads to the lack of desire and lack of ability to push through with making decisions that the general public might not like in the timeframe of a day, but will like over the timeframe of five years?

Our thoughts at Fink are that this typifies British culture — there is a severe lack of decision making that is different.

You can see it from the managerial class’ pushing back against Brexit.

Deviation from status quo is not permitted.

Furthering on from this, there is onus to explain difficult things.

Note, I haven’t even mentioned yields — because the didn’t actually matter.

It had nothing to do with the price of bond yields, but had everything to do with what people PERCEIVED them to mean at that time.

Because if you start bringing up bond yields, you’re going to have to explain why they started rallying long before the mini-budget and why they have stayed at the same levels for the last 2 years, even though the mini budget didn’t happen…

Because for liability driven investments, it was down to the volatility and lack of oversight rather than price.

And institutions don’t like to be found out.

So yes, this was a coup from the Bank of England who oversees LDIs and pensions.

Oh, and do bear in mind why there is such a hard on for bonds in the post COVID world too.

In what arena would you suggest people to be long bonds over equities — again, pension fund managers getting found out, a British trait I feel…

Again, this was a coup across multiple different departments of government and British institutions to not be shown up by a change in status quo, and they simply played on the ignorance and arrogance of British media and the electorate.

If Truss had released her mini-budget 6 months later we would have been having a different conversation, and I said this when I appeared on GB News…

But, being too early to a trade is the same as being wrong.

Getting back to Reeves, she is a useful idiot for the OBR, backed up by her credentials of working at the Bank of England, again, something I’d have concerns with.

What is required is a markets focused person as Chancellor, especially if now they are shit scared of markets reacting, creating barriers to good policy…

It REALLY looks like she’s TERRIFIED of Truss 2.0, even though the context is entirely different.

See, the Truss budget came at a time of RISING interest rates (that anyone paying attention already KNEW was going to cause issues for the UK’s LDI pension funds, months before Truss was chosen as PM)

Now, the most likely path for interest rates is LOWER, and Reeves is suddenly worrying about borrowing…

I am afraid for the stupidity again that is stemming from Whitehall and would certainly love to interrogate some civil servants as to what they are doing to the UK (the answer would be making it considerably more thick).

Feel free to quote this article across socials, and tag me on X if you do!

PS. we have mentioned a trade idea to do with sterling based off this.

Join Fink Ultimate today to get it…