Don’t look inside the sausage factory

Published: Wed 24 August 2022
Updated: Tue 22 November 2022
By steve

In Markets.

The sausage machine

Stephen Semler writes a substack exposing venality and hypocrisy in US Federal policitics. You can read his latest here I always regret reading this stuff. It sickens me to write about it and it’s not even my country, so I absolutely have no ability to change the system. I guess I read it out for the same sort of reasons that makes me glance at smoking wrecks on the hard shoulder of the motorway when I should be concentrating on the road ahead. It’s a sort of indication of stuff that can happen if you’re not careful. And a reminder that once it has happened, it’s very hard to undo the damage. Semler quotes David Serota:

Put simply: In order to have any chance of passing a budget bill with huge investments in clean energy, our kleptocratic politics requires a corruption tithe — in this case, funding for roads and airports and all sorts of other carbon pollution that big donors want, but that might not be advisable in the era of cataclysmic climate change.

I don’t think we’re quite there yet in the UK, but we’re definitely moving in the same direction. Vast amounts of work for government is done by PWC and co., as a sort of freebie, but just like their ain’t no such thing as a free lunch, there ain’t no such thing as a free policy paper.

Bismarck (possibly) advised that it was better not to see how sausages are made, and that the same goes for laws. Good economics is usually bad politics, and payment of a modest corruption tithe probably is the best we can achieve, but we should at least acknowledge the existence of this tithe, and take the cheap obvious methods to minimize it, not least to fund a strong, independent, non-partisan civil service that does not need to be supported by legions of consultants.

PMI malaise

The Daily Shot today had a whole list of charts showing deep gloom from the purchasing managers community. (Seriously, has anyone every met a purchasing manager? Are these creatures an more real that phoenixes or griffins?) Seriously, the items are unrelentingly negative. The same goes for the FT (I still read it on paper!). It’s bizarre that equities are rallying, but I guess if the only golf club the Fed has is interest rates, we are going to see a (much denied) pivot. The mid-terms are coming up: socializing the costs of inflation for ordinary working class and middle class folk seems a no-brainer for a Democrat party.

Forgiving student loans

Biden is going to cancel $10K of the student loans of the poorest students. Actually, maybe $20K for the really poor. Well, Larry Summers says this is a very bad idea, which increases the chances of it happening. In the UK, this sort of forgiveness is built into the system, in that if you make it to (I think) 55 and you still have debt outstanding, it’s forgiven. Repayment is income contingent. The current system sets the interest rate to an inflation index. This is going to seem excruciating to many. If Starmer promises partial forgiveness, I can’t see it not happening.

UK Politics

The latest Delta Poll survey shows a very weak showing for the Conservatives.

The Conservative Party now has support of only 11% of voters under 35. It’s hard to see the party being electable to anything in ten years time. Conservative support in the UK is now down at 31%, with basically every other party being well to the left of it. If there is any degree of election coordination between these broadly aligned groups, the next election is lost to the party. Of course, parties of the Left much prefer to practice internecine warfare than unite against a common enemy, which is why the right will probably get through in Italy this time, but at some point even someone as electorally hapless as Starmer will be able to win.

If I had to hazard a guess as to why the support has ebbed from the party, I would have to say that it’s because Boris is no longer king. Boris didn’t really have charisma, vision, consistency, any developed sense of political strategy but he was likeable in a roguish way. The fact that the establishment detested him, and the media was constantly full of stories of his mendacity and amorality endeared him to voters, the large majority of which fail to meet the highest standards of honesty and integrity.

You can download the detailed figures here but be warned, it’s a pdf.

Wrap

Yields up, equities flat to down, commodities up a bit, FX basically flat. The only game in town was in Jackson Hole, where a few vaguely hawkish speeches were made. The execrable Neel Kashkari was quoted in the WSJ saying that the Fed should not risk easing its monetary policy until there is “convincing evidence” that inflation is set on a downward path. Kashkari is an FOMC voting member next year, so presumably does not shoot from the him when talking about the expected future path of monetary policy. Supposedly, his comments pushed up the two year yield by a few basis points but who really knows?.

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bowl of fruit

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