Suspicious Minds
This is a classic that I have used before but it really does deserve a second coming.? Suspicious Minds was released and recorded by Elvis Presley in 1969.
The lyrics are so ‘on message’ for this particular article which many may find a little distressing.? It therefore comes with a health warning so if anyone is of a highly nervous disposition and is unprepared for a reality/sanity check please delete and trash.? If, however, you are up for a dose of economic realism and have a healthy constitution please read on but at your own risk.
We're caught in a trap, I can't walk out, because I love you too much, baby
Why can't you see, what you're doing to me, when you don't believe a word I say?
We can't go on together with suspicious minds and we can't build our dreams
The time has finally arrived for some straight talking because I really don’t think that the penny has yet to drop in Financial Markets. It’s an open secret to those with long memories that valuations in global equity markets are extreme and demand has been fuelled by a Liquidity Bubble driving excessive demand from cash for risk assets as Central Bankers have purchased swathes of Treasury Debt but with Borrowed Money.? Global economies, and primarily those in the western world but also in Japan, have therefore created what can only be described as an incurable Debt Trap where the consequences are at best bad and at worst dire.?
The financial crisis of 2008/2010 is of course responsible for laying the foundations of this Debt Trap.? Just think about it.? Central Banks were then seen as the salvation of the Financial System as an ocean of liquidity was created by eye-watering issuance of Government Debt and debt that is now held in Spades by most Central Banks. The foundations for this unsustainable and self inflicted debt crisis have finally now been laid bare at the feet of Governments/Central Bankers and the architects of salvation during the financial crisis are now paying the price for what can only be described, some fifteen years later, as a very untimely and poor control of Interest Rates/Monetary Policy.? Governments and Central Bankers will always point to outside factors that, admittedly, have not been seen as favourable towards the promotion of economic activity.? Indeed, Ukraine and the disastrous lock-downs will forever be highlighted as major negative influences but the decision to lock-down post the COVID Pandemic was self imposed and, arguably, overkill from the top that is now having a highly debatable negative impact on mental health issues and the System.
When one is in a Debt Trap this is, of course, a covert way of also saying that one is in a Credit Crisis.? A little bit like love and marriage and just as night follows day, debt and credit cycles are highly correlated and also positively correlated with each other.? However, this time around the debt trap not only embraces Consumer and Corporate Debt but is magnified in spades by the eye-watering levels of debt on Central Bank Balance Sheets that can only be repaid via a combination of higher economic growth, higher taxation and selective spending cuts or, dare I mention, by higher inflation that will put upward pressure on short term interest rates which, in turn, will put downward pressure on the potential to generate higher levels of real growth.?
The above conditions therefore create what can only be described as a vicious downward spiral fuelling Stagflation which is good for no-one and is an amalgam of Stagnation and Inflation. However, the cupboard is unfortunately bare for most Western Governments who can ill afford to repay the coupon/interest on their Treasury Debt let alone pay off any of these principal sums.? In truth, the holes are so deep, Governments therefore just need to stop digging, face reality and take a good look at their selves in the mirror because they will now have to face the consequences, regardless of their political bias; the primary focus of attention and anger must however be directed at the Political Blues and the Political Reds, a classic case of Roulette where Blue simply replaces Black.
National Governments have therefore completely lost any form of credibility and are at best clutching at straws.? The DOGE factor in the US has, arguably, arrived far too late to contain US debt and any attempt to eliminate waste could be cancelled out by President Trump’s totally misguided love affair with his Tariffs that are anything but beautiful, will not only be the catalyst to a global slowdown in trade and, as a consequence, will also be an inflationary head-wind for economic activity.? It hasn’t taken long for swinging revisions in economic growth forecasts to be announced but one thing is guaranteed; President Trump has a plan of reform and he is unlikely to take on board compromise so arrogance is guaranteed and it will continue to prevail.
The same scenario can be said for SKS but we all know that he is also the past-master of U-Turns.? However that is not going to stop him from announcing measures that are designed to pare back costs in the Public Sector as he takes a root and branch review of the Benefits System.? He has established a reputation for upsetting his flock and these measures, which you would usually expect from a right leaning government and not from one driven by Communist Tendencies, and will correctly lead to criticism from many of the Defensive Bodies.? However, for once, these supporters of benefit also need to think outside the box.? If there is a semblance of truth in the consequences from this Debt Trap, the big losers will be hit by the declining value of all fiat currencies that will be the consequence of unsustainable debt mountains.?
In layman’s terms, just in case some are still not convinced and not yet on board, it is the real value of benefits and not the absolute value that will be at risk as the purchasing power of these benefits declines.? I would therefore advise any youngsters who aren’t doing a job but are capable of doing one, to get off their backsides and find one because, looking forward, wages should rise faster than benefits and many benefits for those who don’t work but are capable of working will definitely lag higher levels of inflation significantly. It is also a well known fact that those who are already economically inactive are becoming sicker, meaning they are less likely to return to work. So, while other factors were previously masking the impact of an ageing population on the size of the workforce, they are now reinforcing it. It may also come as a shock to the system but working could dramatically improve their mental health and will also help to create economic growth.? Your country therefore needs you to work and working full time may also allow conscription to be avoided.
All of this is of course hardly great news for Rachel from Accounts.? We all therefore wait with bated breath for her next move- some would say next own goal - in her quest to generate economic growth and better conditions for those all important Working People.? In my opinion she is still pushing on the proverbial piece of string or, putting it more graphically, pissing against the economic winds of stagflation.? However, I am prepared to offer her an Olive Branch.? She could hi-jack a Reform recommendation and raise tax thresholds to ￡20,000 before any income tax is paid.? Such a move could indeed be financed by Benefit Cuts and would be a key driver of able but idle youngsters moving from the couch to employment.
Like Elvis Presley, SKS is definitely Caught in a Trap.? If he therefore has the stomach to stay on as Prime Minister by trying at last to win over public opinion, he could do worse than sack any calamitous and under-performing ministers starting with Rachel from Accounts who is clearly out of her depth and such a poor presenter of her policies.? Ed Miliband, along with Ms Reeves, must also be high up on the list as another major casualty when factoring in the mind blowing costs needed to deliver his mission that are coming out of his ‘net zero’ brain. The future of the Business and Education Ministers may also be high up on his exit list when he announces his Cabinet Re-Shuffle but this will still leave more lame duck ministers who I really don’t need to name.? Their reputational risk towards harming progress is self evident.
However, if SKS has the good fortune and opportunity to read this article, he may indeed also feel it is timely to sack himself along with the Governor of the Bank of England who is one of the principal architects behind the creation of this unsustainable Debt Trap that is going to affect many individuals and families.
In summary, our Governors have been economical with the truth, so much so, the country doesn’t love them anymore and voters are rightly very suspicious of their motives/policies. However, the future is not bright without the implementation of some tough medicine.? As I said in a recent article, there is no sweetness and light out there for our economy and we have to move into a period where our Government has to be Cruel to be Kind but, I am a realist with huge sympathy for those who are genuinely unable to hold down a job.? The Government therefore needs to very careful and target the correct audience when it takes the knife to the Benefits System.