Brexit and the waning days of the United Kingdom

[The Minsky Moment]

AFAIK Gilts are not selling at negative interest rates, the UK is at full employment, and regardless of the interest rate principle still needs to be paid back or refinanced at maturity.

Short dates traded negative yesterday and the 10 year hit a record low.  So no immediate panic.
As for employment, private sector hiring has fallen to a crawl.  Unemployment is being kept low by big increases in self-employment.  This is part of the UK pattern of lower quality and lower productivity jobs filling in.  Moving those people back into the employed sector would by no means be a bad thing.  There is no sign of inflationary pressure.

[grumbler]

The rub lies in whatever is preventing the market from responding to high demand for 1 BR apartments with an increase in supply of 1 BR apartments that will rent for less than $3500 .

Exactly.

And the question is what is that?  The assumption that more supply will lower price will not hold if more supply increases demand.

Is that what you learned in Econ 101?  That more supply can increase demand?  Get a refund.

[Tamas]

I just can't get the general attitude: "anti-austerity" means making your country "work better" by spending borrowed money, which surely should be done on a case by case basis not to base your entire existence on doing it.

Anti-austerity in this context means that when government bonds are being sold to investors at *negative yields* the market is sending the message that it might not be unreasonable to spend some money on infrastructure projects that put people to work and improve growth potential, as opposed to figuring out the most inventive ways to make poor people even poorer, or alternatively completely denude the national defense.

The problem with Corbyn is that he is red nutbag with a martyr streak and all the charisma of dessicated moose turd.  Not that he is anti-austerity

I guarantee you, the supporters of these anti-austerity politicians have more welfare spending in mind when they get all excited about it.

[Valmy]

I guarantee you, the supporters of these anti-austerity politicians have more welfare spending in mind when they get all excited about it.

Yeah I might even be alright with deficit spending if it was in short term infrastructure projects. The problem is it is usually long term entitlement commitments.

[Sheilbh]

Labour have explicitly said they want to spend on infrastructure. Though they also want to roll back some of the Tory welfare reforms of the last five years which would be no bad thing.

As I say it's really annoying that Labour's got the rhetoric and attitude of the bloody Spartacists while their policies have not changed, so far, at all from Miliband. I'd almost have more tolerance of Corbyn if he'd announced a load of far left policies but he's not even done that. He's just slogans and poses

[mongers]

AFAIK Gilts are not selling at negative interest rates, the UK is at full employment, and regardless of the interest rate principle still needs to be paid back or refinanced at maturity.

Short dates traded negative yesterday and the 10 year hit a record low.  So no immediate panic.
As for employment, private sector hiring has fallen to a crawl.  Unemployment is being kept low by big increases in self-employment.  This is part of the UK pattern of lower quality and lower productivity jobs filling in.  Moving those people back into the employed sector would by no means be a bad thing.  There is no sign of inflationary pressure.

It's interesting that a inquisitive foreigner* has a better understanding of the UK economy than most UK politicians and significant sections of the international commentariat.


*Sorry to use that word, but used to emphasise the point.

[The Minsky Moment]

Is that what you learned in Econ 101?  That more supply can increase demand?  Get a refund.

No - that's my point - not all markets follow Econ 101 principles because the underlying axioms don't apply to all markets.
Housing in central global cities like London, NY, HK are extreme examples of positional goods - so the more certain kinds of affluent people live there the greater the demand among such people to live there.  Not to mention the foreign absentee buyers who come in not to consume housing services but simply to hold as a safe store of value.  Supply in that scenario can create demand.

That's not to say highly restrictive zoning is a good idea in such markets - very likely it is not.  Only that encouraging building of more luxury units isn't necessarily a solution either.

[Admiral Yi]

Short dates traded negative yesterday and the 10 year hit a record low.  So no immediate panic.
As for employment, private sector hiring has fallen to a crawl.  Unemployment is being kept low by big increases in self-employment.  This is part of the UK pattern of lower quality and lower productivity jobs filling in.  Moving those people back into the employed sector would by no means be a bad thing.  There is no sign of inflationary pressure.

There is an infinite number of ways a government can spend money that would by no means be a bad thing, particularly for the individuals collecting the rents.

Latest total year deficit I could find was a crippling, draconian, Spartan, inhumane, unreasonable 4% of GDP.  Meanwhile the economy is growing at 2.1%.  So, duh, debt/GDP is growing during "austerity."

So anyone who is "anti-austerity" wants to grow the debt during a time of positive, sustained growth and low unemployment.  I remember some very valid criticisms made during the Great Financial Crisis about the endemic deficits run during boom times by the Blair government, which had the effect of reducing the UK's ability to engage in pump priming.  Any of that seem relevant now?

"Austerity" is not a fashion choice.

[The Minsky Moment]

GDP growth in 2015 was down from the prior year.  2016 was doing OK but the expectation is that there will be a hit from Brexit. 

I agree that there may not be a compelling case for a massive fiscal stimulus even with the Brexit overhang.  But neither is there a case for austerity.  That's what anti-austerity means. 

As for the Blair-Brown era deficits, whatever their virtues or vices, fiscal capacity is not a significant issue.  The markets are offering money to Britain at 0.5% for 10 years.  If there are infrastructural projects capable of returning economic benefits equal to costs plus 1% annually, then they should be green-lighted.  Similarly, allowing deferred maintenance to pile up now that will just have to be paid for later - when borrowing terms may be worse - is not fiscally wise.  This of course is not just an issue for the UK.

[Admiral Yi]

I agree that there may not be a compelling case for a massive fiscal stimulus even with the Brexit overhang.  But neither is there a case for austerity.  That's what anti-austerity means.

The anti-austerity folks are defining 4% deficits as austerity, so it follows that anti-austerity means some some deficit larger than 4% (unless the current usage of austerity has become totally unhinged from any reference to fiscal policy, much as neo-liberal has come to stand in many quarters for really really bad).

As for the Blair-Brown era deficits, whatever their virtues or vices, fiscal capacity is not a significant issue.  The markets are offering money to Britain at 0.5% for 10 years.  If there are infrastructural projects capable of returning economic benefits equal to costs plus 1% annually, then they should be green-lighted.  Similarly, allowing deferred maintenance to pile up now that will just have to be paid for later - when borrowing terms may be worse - is not fiscally wise.  This of course is not just an issue for the UK.

I would think a poster who had chosen Hyman Minsky as his handle would have some notion of the speed with which bond markets can go sour, and the lack of warning signs before they do.  And as I mentioned earlier, regardless of the current rate future taxpayers will still be on the hook for the principle.

[The Minsky Moment]

I would think a poster who had chosen Hyman Minsky as his handle would have some notion of the speed with which bond markets can go sour, and the lack of warning signs before they do.  And as I mentioned earlier, regardless of the current rate future taxpayers will still be on the hook for the principle.

Minsky's hypothesis concerned financing of private ventures by the banking system, not the financing of public debt by the Treasury.  His views on the latter are more Keynsian, and perhaps influenced by Abba Lerner, who questioned the distinction between monetary and fiscal policy.

The usual after-effect of a Minsky Moment is a general collapse in rates on public debt.

[The Brain]

Abba Lerner? Now I get this weird image in my head of Benny hosting Man To Man.

[Berkut]

Short dates traded negative yesterday and the 10 year hit a record low.  So no immediate panic.
As for employment, private sector hiring has fallen to a crawl.  Unemployment is being kept low by big increases in self-employment.  This is part of the UK pattern of lower quality and lower productivity jobs filling in.  Moving those people back into the employed sector would by no means be a bad thing.  There is no sign of inflationary pressure.

There is an infinite number of ways a government can spend money that would by no means be a bad thing, particularly for the individuals collecting the rents.

Latest total year deficit I could find was a crippling, draconian, Spartan, inhumane, unreasonable 4% of GDP.  Meanwhile the economy is growing at 2.1%.  So, duh, debt/GDP is growing during "austerity."

So anyone who is "anti-austerity" wants to grow the debt during a time of positive, sustained growth and low unemployment.  I remember some very valid criticisms made during the Great Financial Crisis about the endemic deficits run during boom times by the Blair government, which had the effect of reducing the UK's ability to engage in pump priming.  Any of that seem relevant now?

"Austerity" is not a fashion choice.

When the economy is bad, you have to spend more.

When the economy is good, it is very important that you don't cut spending, but rather increase it.

If the economy is so-so, it needs some stimulus spending to make it good.

[Admiral Yi]

The usual after-effect of a Minsky Moment is a general collapse in rates on public debt.

This seems not to have been the usual case when the Irish and Spanish real estate bubbles popped.

[The Minsky Moment]

When the economy is bad, you have to spend more.

When the economy is good, it is very important that you don't cut spending, but rather increase it.

If the economy is so-so, it needs some stimulus spending to make it good.

Country A has a transport system.  The system costs $X per year to maintain.  There are additional capital needs of $Y per year to keep up with growth in population and commerce.  But right now Country A is spending about .6X and .6Y per year.

This isn't really a hypothetical by the way - it is a simplified description of the UK which McKinsey estimates has a 5 billion pound per year funding gap on transport infrastructure over the next 20 years.  100 billion pounds.

Now you can continue to tolerate congested roads and allow this funding gap so that the politicians can beat their breasts a la Chris Christie about how tough they are on fiscal management.  Until the day a bridge collapses and then Parliament freaks out and money gets appropriated - only by then the accumulated deferred bill is heavier, and there is no way to know what interest costs will be when that happens.

Or you can say this is practically speaking a real obligation that already exists.  And hey look, right now we can fund it at 0.5% - is it really going to be much better some other time?