breaking news from the world of ideas

by Philip Pilkington
Tuesday, 22
November 2022
Analysis
13:15

The OBR is hiding a future mortgage crisis

The public body's dubious modelling is concealing a darker truth

Last week the Office of Budget Responsibility (OBR) released its November Economic and Fiscal Outlook. The new forecasts got particular attention because they accompanied the Chancellor’s Autumn Statement. The OBR forecasts generated some scary headlines, with the papers focusing on the grim figure for household disposable income that the OBR said would fall some 7% in the next two years.

Yet both the budget and the forecasts weren’t really that concerning. It appears that both the Treasury and the OBR pulled off an impressive public relations trick: they managed to convince the average Briton that the situation was bad, but at the same time they released a budget and forecasts that were less doom-mongering. Most importantly, they appear to have buried from view some of the worst economic consequences facing the British people. ...  Continue reading

by Philip Pilkington
Tuesday, 15
November 2022
Analysis
13:00

The spectre haunting the Autumn Statement

The Government is failing to address the extent of the energy crisis

There is a spectre haunting the Chancellor’s Autumn Statement this Thursday: the spectre of a protracted energy crisis. Yet the unwelcome ghost is rarely discussed. Attention is firmly fixed on minutiae like marginally raising various rates of tax or shifting the tax brackets to make people pay a higher rate.

However, the numbers show clearly that taxation is not the issue when it comes to Britain’s budgetary crisis. Take fiscal year 2022-23 as an example. Kwasi Kwarteng’s failed tax cuts were set to cost around £5bn in this period. The government’s Energy Price Guarantee (EPG), on the other hand, is set to cost £60bn. ...  Continue reading

by Philip Pilkington
Tuesday, 8
November 2022
Analysis
13:00

Why advertisers leaving Twitter benefits Elon Musk

A new model is required to insulate the company from activist pressure

The backlash to Elon Musk’s Twitter deal did not not take long. Within days of his purchase IPG Megabrands — one of the four largest advertising companies — advised their clients to suspend advertising on the platform. In addition, Pfizer, General Motors and Volkswagen are among the other companies to have suspended paid adverts on the platform.

In 2021, advertising made up around 92% of Twitter’s total revenue. It is now clear, if it was ever in doubt, that for Musk’s vision for Twitter to succeed he will need to wean the company off its addiction to advertising money.

Musk’s first strategy has been to announce that Twitter will now sell its verification badges — commonly known as blue ticks — to users for a fee of $8 per month. Until now the verification process has remained shrouded in mystery. Twitter has the criteria laid out on its site, yet many users have found themselves rejected with no explanation despite meeting the explicit requirements of the verification process. It is not surprising, then, that only 0.2% of Twitter users are currently verified ...  Continue reading

by Philip Pilkington
Tuesday, 1
November 2022
Analysis
17:00

Lula is no friend of America

Washington's goodwill may be short-lived

Over the weekend, in a highly contested election, former Brazilian President Lula da Silva was returned to office. After the defeat of Jair Bolsonaro, the ‘Trump of the Tropics’, sighs of relief could be heard across Western capitals, especially in Washington DC where anything that invokes memories of Trump brings with it a predictable attack of the vapours.

Yet, judged on a purely realpolitik basis, Lula’s win could be extremely problematic for the West and, particularly, for the United States. The reaction to Lula’s win feels like a warning signal that Western political elites have become so inward-looking and obsessed with their own domestic culture wars that they cannot grapple realistically with the enormous geopolitical challenges that the third decade of the 21st century is throwing their way. ...  Continue reading

by Philip Pilkington
Tuesday, 25
October 2022
Analysis
13:30

Is there a bubble in the European gas market?

Rumours of an energy glut are greatly exaggerated

On Monday something peculiar happened in the European natural gas market: the spot price went negative. That is, traders were paying other traders to take contracts for gas deliveries off their hands. These contracts had apparently become worse than worthless: people were getting paid to get rid of them.

This is significant. In the United Kingdom, thanks to government intervention, the average household energy bill is capped at £2500 per annum, which is 95% higher than it was this time last year. Yet if someone had entered the market for gas on Monday, a trader would have paid them to take gas off their hands. ...  Continue reading

by Philip Pilkington
Tuesday, 18
October 2022
Analysis
07:00

America tries and fails to sanction China

Export controls on semi-conductors will only make matters worse

The United States recently moved to severely restrict the export of advanced semi-conductors to China. At first it may appear odd that America would engage in export bans of this type. For one, China is America’s second largest export market for semiconductors, making up almost 15% of total exports. But the ban also seems to fly in the face of America’s self-identity as a nation that promotes and benefits from global commerce.

When explaining the policy to the world, the United States did not ask the Secretary of Commerce to speak. Rather, National Security Adviser Jake Sullivan stepped into the breach. Economic considerations did not appear to be at the top of his agenda. Indeed, Sullivan instead pivoted to rhetoric that harkens back to the old Cold War. ...  Continue reading

by Philip Pilkington
Tuesday, 11
October 2022
Debate
14:15

Don’t blame the mini-budget for the market turmoil

The gilts sell-off hints at much deeper problems

Yesterday gilt markets sold off sharply. No doubt this was a headache for both the government and the Bank of England (BoE), who thought they had got the selloff under control at the start of the month. Yet 30-year gilt yields have now surpassed 4.5% once more and are rapidly climbing back up to past 5% — where they stood prior to the BoE intervention earlier in the month.

Gilts are the markets that the British government taps to finance its borrowing. The interest rate on this borrowing is set jointly by the financial markets themselves and the BoE which provides guidance. Typically, the BoE and the markets work together to set rates, but right now they are working at cross purposes. This shows a disconnect between how the markets perceive the realities of British government finances versus what the BoE wants these realities to be. ...  Continue reading

by Philip Pilkington
Thursday, 6
October 2022
Analysis
15:30

OPEC+’s oil cuts signal a new world order

The oil needs of the West are no longer a primary concern

OPEC+ announced on Wednesday that it would make production cuts of 2 million barrels per day, which is roughly equivalent to 2% of global supply. The decision is monumental. It shows that a new type of world is emerging in the wake of the war in Ukraine, and one that does not revolve around the West. As White House spokesperson Karin Jean-Pierre said this week: “It’s clear that Opec+ is aligning with Russia.”

The reality is that the decision to cut production is completely rational from the point-of-view of OPEC+. With interest rates rising quickly and growth slowing, Europe, which makes up around 19% of total oil consumption, is almost certainly facing down a serious recession next year. There is also a risk that the United States and Canada will fall into recession at the same time — these countries make up a further 27% of total consumption. ...  Continue reading

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