Monday 26 September 2022

Liz Truss and the Hedge Funds

Just before Liz Truss became Prime Minister, we observed that she had one chance to get her energy price policy right. What I was not expecting was an immediate move to see through her tax cuts plan through. But that's exactly what Kwasi Kwarteng announced, undertaking the most self-destructive strategy any government of my lifetime has embarked upon. There's no doubt the economics of allowing the profiteers to profit won't lead to economic growth: the real problem is the politics, which are simply unsustainable.

When the pound tanked and sank to new lows against the dollar, when the interest paid on gilts (i.e. government bonds) shot up, and when the likes of the Halifax, Virgin Money, and Skipton said they weren't issuing new mortgages thanks to volatility in the markets, they were all doing Britain down and being negative and had nothing to do with the policy decisions made. The consequences of which include pressure on the Bank of England to raise interest rates to keep the pound stable (hello repossessions), and further inflation growth as the country's import-dependent economy has to find more money to tread water. Undoubtedly, what Truss and Kwarteng have done have ensured recession is more or less guaranteed, and that it will be sharp and damaging for millions of people.

Politicians can and do make mistakes, but considering how tax cuts were Truss's USP versus the more cautious Rish! Sunak, and the reams of data at her disposal, to suggest it's an honest error guv won't wash. It's either wilful negligence or quite deliberate. And if it's the latter, why?

As long argued here, the Tory party is as much a coalition of interests as Labour. For want of a better phrase, Toryism in its unfiltered form is a mess of tendencies and compromises articulating the views of sections of capital, large and small, with a very subordinate and increasingly unimportant strand of working class sympathy. Alignments shift and change, but there are two constants. The first, the primary reason for existing - as historically proven time after time - is the defence of wage labour and maintenance of class relationships. A position all Tory factions and fractions share. And the second is a commitment to preserving the role played by the City of London in global brokerage and finance. This is not only the goose that lays the golden egg, it ensures the British state and British capital enjoys an outsized pre-eminence on the world stage.

This is the axis around which different interest groups and factions circulate. But, historically, with the City at the centre those who have enjoyed most influence are those bits of capital with closest ties to the City. You just have to look at Tory MPs and ministers to realise this: every Tory government has literal personifications of commercial capital legislating for their interests every time the division bell is called. At least since 2010, the hegemonic interests in the Tory party have been (naturally) commercial capital, with finance and rentier capital, asset strippers and contracting out specialists, and labour intensive industries - some retail and hospitality, some agricultural, some logistics, and some (low automation) industry. Organised in hierarchical fashion, commercial and finance (loosely defined) are pre-eminent, but everyone has to gain something for the alliance to be sustained. Hence depressed house building, tax breaks for property acquisition, holding down living standards and making work more precarious, and so on. The Tories build out from this alliance to bring their mass support on board and are singularly skilled at it, with Boris Johnson's 2019 performance a master class in how it is done.

Truss seems to have partially broken with this configuration of interests, embracing a section of commercial capital, and a particularly short-termist one at that. As is widely reported, hedge funds with close links to the government have profited enormously from the shorting of the pound. By weakening the currency's standing the UK looks less an attractive proposition to invest in and more one conducive to asset stripping on the cheap - something that can only be exacerbated by Truss and Kwarteng's extension of state debt to protect energy profits and give tax cuts to the rich. This means another round of public sector cuts are likely, and with it more opportunities for outsourcing specialists to directly profit from manufactured markets underwritten by state spending. It appears to be Truss's reasoning that getting this done quickly will catch as so much carrion in the nostrils of vulture capital and have it swoop onto a fire sale of UK state assets and delivery contracts. With the most damaging aspect of her programme done, the Tories can then spend the next two years fulminating against "militant" trade unions and the usual targets in a renewed war on woke. And if the Tories lose, it won't be for nothing. For a beautiful moment in time, the most parasitic and socially useless formations of capital will have made a killing and well remunerated retirements beckons for Truss and her lieutenants. The mess can be left for Labour to clean up.

Trussonomics then has nothing to do with growth. And, indeed, it seemingly has little to do with the Tories staying on top of British politics. The cavalier way Truss has dispensed with the alliance of interests that supported her three predecessors is reflected in the opposition and rumours of opposition appearing right across the press. But no matter how risky Truss's strategy appears to be, ultimately the costs of the risk will be borne by those who stand to lose their homes, those dependent on public services for their survival, and those for whom the deliberate stoking of inflation can only make the cost of living crisis bite harder.


Blissex said...

«When the pound tanked and sank to new lows against the dollar»

Not that big a fall, and the pound collapsed a couple of times before and by much more and this was not remarked upon.

The fall-of-found story and other attacks are the usual story: the Liberal wing of "The Establishment", having got rid of kipper Johnson only for him to be replaced by kipper Truss (kippers being at least half of MPs and 2/3 of association members), is now trying to get rid of Truss too, perhaps with a view to throw the elections to New Labour (representing the interests of "Middle England", the City, the Pentagon just like all other major parties). The kipper majority of the membership of the Conservative associations is a damn nuisance for "The Establishment" just like the corbynista majority of the Labour party was. But the kipper faction of "The Establishment" is made of insiders, not outsiders like Corbyn, and is thus far harder to get rid of.

In these factional fights between right-wing "whigs" and right-wing "tories" the left should be indifferent, even if some may claim (or be deluded) that the "whigs" (e.g. New Labour) might be less harsh than the "tories" (see how many trillions of pounds New Labour worked hard to redistribute from the lower classes to the upper-middle and upper classes via booming housing costs while obfuscating that by letting a few more crumbs fall off the table via fiscal policy).

«when the interest paid on gilts (i.e. government bonds) shot up, and when the likes of the Halifax, Virgin Money, and Skipton said they weren't issuing new mortgages thanks to volatility in the markets, they were all doing Britain down and being negative and had nothing to do with the policy decisions made. The consequences of which include pressure on the Bank of England to raise interest rates to keep the pound stable»

The interest rate propaganda is laughable as interest rate are way below the rate of inflation, signaling a very expansionary monetary policy, which is what is causing the pound to fall.

«(hello repossessions)»

In the latest property crash post-2008 "forbearance" was widely used to protect property prices and rents, by largely suspending repossessions for several years:
The Bank of England estimates that as much as 14% of all UK home loans are either delinquent or in some sort of forbearance process. Nobody really talks about this because nobody wants property prices to fall out of bed. Can we handle the truth?

The Conservatives learned a lesson from the 1997 and 2010 elections, and will do whatever it take to prevent another property crash.

So overall as usual I would not be enthusiastic about replacing Johnson version 2 (Truss) with Cameron version 2 (Starmer or Sunak).

NB: I still think that New Labour's polls would be more sustainable if Starmer were replaced with much more popular Sunak, who is now obviously available, even if he may yet wait for a second chance at the Conservative leadership.

Old Trot said...

Utter drivel, Blissex. You just can't let go of your now utterly kaput 'ever rising housing property values = Tory voting' premise can you. The Tories cannot protect the value of ordinary housing in the coming inflation storm you ever-complacent silly man. Do some NEW thinking to take account of the fast-changing real world. A general house price collapse looms, well beyond government control - especially an Ayn Randist libertarian neoliberal one.

Anyone wanting to grasp just why the UK 'Left' today is so high and dry in strategy and analysis terms should have a read of Jeremy Corbyn's article in today's Morning Star Online - 'No More Tinkering Round the Edges'. Everything Jeremy says about our failed neoliberal system is of course quite correct. But this is a man who is now permanently excluded from even standing as a Labour MP. This is a man who still has a potential mass following of hundreds of thousands. Yet he wastes his time with the impotent Left liberal moralistic 'Truth and Justice' think tank, whilst determined apparently to avoid taking up the vital figurehead role for a new mass (non revolutionary) radical social democratic Left political PARTY ! He simply cannot see beyond the toxic swamp of Labourism - even though the 'Socialist Campaign Group' of his Labour MP 'old comrades' is now utterly cowed by the Right's reclaimed hegemony - singing along with 'God Save Our Gracious King' with all the rest, and keeping its collective heads down - to try to stay on the MP gravy train beyond the next election. Tragic stuff. Jeremy could be the leadership figure of a new mass party of hundreds of thousands almost overnight, and in the Red Wall seats in particular the FPTP system would not necessarily be the usual barrier to surprise new Left party victories - now that both Tory and Labour , (and Lib Dem), options are equally unpalatable to the ever more desperate left-behind working class potential voters. Without a radical Left Party option they WILL eventually turn to the radical Far Right.

Anonymous said...

I love your blog, Phil, it is bright, imaginative and socialist. But may I ask you not to tolerate personal attacks by those who comment on your posts by other commenters?

Old Trot is proving he is an old Trot (see, I'm doing it now) by his unpleasant vitriol against Blissex, who is an interesting and thought provoking poster. Old Trot is, of course, totally at liberty to trash Blissex's argument, if he can. To my mind he sometimes scores a direct hit. I respect his argument but not his personal attacks on others. We have seen the same with Jim Denham who, despite being misled by the AWL (see, I can do this stuff. It is pointless and embarrassing.) is an excellent, capable and hardworking trade union official, part of the life blood of the class movement. He should be respected even if every point he makes isn't. Arthur Bough has given up on your blog.

We need a new discipline in the socialist movement, relentless criticism of bad argument and of poor fact reporting, but no tolerance of person abuse, else we are never going to build a movement solid enough to defeat capital.

That's our goal, isn't it? Not just blogging?

Phil said...


Old Trot, calm it down otherwise I'll stop your posting. It's as simple as that.