Obelix would be scratching his head

• Central Bankers and politicians have lost the plot. My good mate Obelix would be tapping his head in confusion. “These Romans are crazy”. Except for this time it’s not the Romans, unless of course, it’s the new Italian Prime Minister we are talking about. 

• This time it’s the English – the Romans eternal enemies/or allies across the channel.

• By now everyone should be familiar with the new Prime Minister and her Minister of Finances new economic plan. Essentially it’s premised on the following.

o Cut taxes – predominantly for the top 5% of UK residents.

o Subsidies across the board.

o Increase borrowing until the new “economic growth” kicks in miraculously.

o And when that happens pay down the debt!!!

o This in response to rising inflation and slowing GDP growth.

• I am always a little amazed that politicians think that they are able to cut taxes, thereby increasing growth that will match the shortfall for revenue.

• If that were the case, why not cut taxes to .01% across the board and voila, growth increases exponentially to the point that the treasuries coffers are overflowing with revenue?

• I know that there is a point where too much tax hampers investment and therefore growth. And I know that there is a point where lower taxes does indeed stimulate growth. However this is a difficult balancing act – akin to a blind man walking on a tight rope spanning the Grand Canyon. The time NOT to do this is when the only thing filling the state coffers are cobwebs But I digress...

• In short, the market didn’t like the news and held a garden sale for UK assets.

• The pound plummeted to record lows against the USD and even lost ground against the mighty ZAR. 

• UK bond yields rose alarmingly and things unraveled rather swiftly.

• This is where things get really confusing, because the Bank of England was forced to step in, and what did they do?

• They stepped in to buy UK bonds in order to “calm” the markets. 

• You may well ask, why is this confusing?  After all, it worked ….bond yields plummeted and the Pound staged a small recovery. 

• Against a global backdrop where Central Bankers are tasked with unwinding decades worth of liquidity stimulus – a process known as quantitative tapering – stimulus that contributed to the inflation problem the world is currently facing, the BOE steps in and institutes further quantitative EASING. 

• What is even more bewildering is that their own Quantitative tapering program is meant to kick in relatively soon.

• So the BOE is busy with Qualitative Easing and Quantitative tapering simultaneously.

• On top of that they need to hike short term rates soon to ward off rising inflation.

• To summarize – 

o the Bank of England is decreasing money supply, and then increasing money supply, and then decreasing the money supply ALL at the same time.

• If you are confused you are not alone. We are all Obelix at the moment.

• As an aside, this is the second Central Bank in the developed world to step in and “calm” markets. The Bank of Japan had to intervene in order to stabilize a collapsing Yen.

• And the reason that they are forced to step in is as a result of problems that they themselves have created (with help from their politicians).

• Stimulus and more stimulus leads to inflation, which leads to falling asset prices which requires more stimulus and the odd bout of intervention. And round and round we go.

• Bookies are now starting to take bets as to how long Truss’s term will last – Christmas 2022 seems to be the consensus.

• Back home we can give thanks for the fact that we have a prudent and deliberate Central Banker at the helm.

• Sadly we cannot say the same about our politicians. 

• Because of their very deliberate decisions not to invest in new energy production 20 years ago we are now faced with a new normal of continued load shedding. 

• Stage 3 or 4 is the new standard.  All whilst our President urges us to be patient. The same President who proudly claimed – in 2015 – that load shedding is a thing of the past.

• In the North East Putin continues with his gamble, sending hundreds of thousands of new untrained, ill equipped, unmotivated cannon fodder to the front to fight an illegal war, all whilst safely ensconced in the Kremlin, separated by acres of table space from any detractors that are surely emerging.

• The results of the referendums are in from the “disputed” territories. The only surprise is that they show slightly less than 100% support for joining Russia. 

• Thank heavens then that our own ANC Youth League sent observers to monitor the fairness of the process. Of course, their impartiality is guaranteed.

• It’s enough to make a man wish that he could just eat some wild boar and drink the occasional infinite power potion. 

• For those who don’t know who Obelix is – google is your friend.