Britain is in debt to the hilt: 105% of GDP and borrowing to pay interest on debt

Every time we hear the debate about British Foreign Aid, we need to think that any amount of Foreign Aid is.... borrowing with rising interest rates. It is not about helping the poorest as much of the so call Forein Aid aid goes to Pakistan - a nuclear power - and to China. To China? How is this possible or even logical?

In the meantime British business have been becoming non competitive as rising taxes are part of the equation of runnnig costs and to this we need to add rising cost of utilities driven by energy prices.

Let put it this way. The British interest payments on public debt are higher that the Defense Budget. Not only that. Britain is borrowing to make interest payments. The economy is heading towards the rocks and devaluation might be the only option left and creditors will not like it as the monies that they are owed will be therefore devalued. Do you think that Britain owes you 1 million US Dollars by comparing the value of the Pound to the value of the US Dollar? Think again. Whatever you think that you are owed will be automatically reduced by devaluation and you will be lucky if you get your monies back. 

Here came the budget: Main target NHS and Second target the economy and particularly interest rates and growth.

The general thinking is that the Labour government will inflict pain earlier with the hope that near the next General Election the numbers will be much better to produce good feelings amongst voters. But this is a gamble by a government that publicly stated that if they had not inherited interest rates that were already going down the present announcements about borrowing could not have been made. 

Everything is based on the presumption that the economy will improve, that interest rates will go down and that repaying the borrowing will become easier. Another factor is promised improvements of the NHS. If the economy does not improve and if improvements promised regarding the NHS are not delivered then this would be a double political wammy that could bring down the present government at the next General Election.

The hope is that no crise like the Covid Pandemic or the energy crise generated by sanctions implemented against the Russian Federation or anything of the sort happens from now until the next General Election. Anything that would require much more borrowing and generate emergency conditions, negatively affecting. the economy, is not welcome. 

Et ceteris paribus? All other things being equal? Expecting that nothing will happen along the way that could change or derail present plans is a very negligent attitude. Things are bound to change. There are crucial ongoing conflicts and the seeds for more conflicts are being planted.

Now, lets have a look at potential trading partners. What is the situation in Europe? What is the situation in the Americas? What is the situation in Africa and Oceania? What is the situation regarding new players that are rising and increasing mutual cooperation?

The belief that new global associations will remain focused on the East and will not spread towards the West is extremely naive. We now live not in a bipolar world. We live in a multipolar world. In which direction the Americas, Africa, and Oceania will go is not a given. But present trends indicate that BRICS is making inroads. Those joining BRICS happen to be the most populous countries in the world. They also happen to be those which tend to have more resources in terms of raw materials. 

Founding countries? Russian Federation, China, India and Brazil. While the main Western countries have been involved in a rising number of conflicts, China has been spreading financially and economically across key regions of the world. The impopularity of the Western approach when dealing with conflicts is spreading and such impopularity does not benefit Western countries. China has not been involved in any major conflict. In fact, it is gathering more and more influence in countries that are far away from China.

Conservative government: What next?

 Conservative Government: What next?

Since the days of Boris Johnson and in spite of then then 80 seat majority, the Conservative Administration has been plagued by both issues that they could not possible foresee and control and by situations that arose because of measures they took that turned into yet another crisis.

The Covid Pandemic declared in March 2020 put everybody to the test and lockdown measures adopted to apparently tackle the pandemic generated a whole new series of issues, increasing divisions within the Conservative Government. It was about 'Lockdown or no Lockdown'. 

The start of declared hostilities in Ukraine was yet another test. Sanctions against the Russian Federation backfired and produced an energy crisis that destabilized the British Economy. The long standing stability with low prices and low interest rates gave way to higher interest rates and higher prices that in turn produced a series of strikes and forced the government to add more protection measures on top of the protective measures adopted during Lockdown to prevent a sudden rise in unemployment due to lack of economic activity.

Once the government started to regain control the crisis in Palestine opened a whole new can of worms. The fact that people immediately took sides reflects the tribal nature of Britain and this, unavoidably, led to yet another reshuffle to try and have some kind of equilibrium both in national terms and in terms of geopolitics.

All the way, from Covid, going through Lockdown, sanctions against the Russian Federation that led to rising inflation and the present issues involving Palestine, fractures within political parties became fairly visible. It is like walking on a high rope without a balancing pole. As the saying goes, 'keep your friends close and your foes even closer'. Loyalties are being tested to destruction. If Britain were to be involved in a real war tomorrow morning, this is a government that is struggling to survive until the next General Election due to take place in May 2024 and that will not be capable of dealing with war at home and war abroad. What would a General Election in 2024 achieve? For starters, it could be change, even if it is change for change sake. Having said that, when you look at what is happening across the home nations, political realities are much too complex to be able to foresee what the outcome of a General Election would be. 

North of the border, at times it looks like the SNP will collapse. At times it looks like any expectations about the demise of the SNP are very much an exaggeration. In Wales, the Labour administration might be unpopular, but then people might decide to stick to what they have got for fear of worse political realities. In Northern Ireland, political paralysis is a reality with Sinn Fein winning spaces and without a cross party agreement to return to the Northern Ireland Assembly. In England, the mainstream political parties are fragmented depending on what are the most important issues according to regions.

There are far too many issues that generate divisions both in terms of national politics and of international politics. You cannot promise one thing to please one side without alienating another side and you don't have the luxury of being vague in terms of where you stand politically.

If Gulf Stream collapses, welcome to the Ice Age

 

Nowadays, folks are complaing about unusually high temperatures. Well, their concerns could soon be unfounded as there are predictions that as early as 2025 the Gulf Stream will collapse plunging Europe into a new Ice Age.

This will mean that very soon Britain and Europe will be covered by massive layers of ice and that Europe and much of Africa will be united by ice. There won't be any navigation and migration problems affecting Britain and Europe will come to an end. Who will want to come and live in areas that will have 60 degrees of more below zero. Magically, all those talking about Net Zero will automatically get it. We will not have to worry about the Bank of England raising interest, there will be no banking system, no dinghies crossing the Channel, no religious conflicts, because because there will be no Christians, no Muslims, no Jews or people of any other religion because they will simply be unable to remain in Britain and in Europe.

There was a time during the Ice Ages that Britain was under hundreds of meters of ice that one such time might be approaching pretty fast. It is said that the Gulf Stream collapsed and re-started several times during Earth's evolution. Imagine a time when there will no Labour Party, no SNP, no Just Stop Oil, no people sleeping rough on the streets and that if anybody tried to sleep rough on the streets there would be no streets as the entire land would be under hundreds of meters of ice.

I find the news about the soon to be collapse of the Gulf Stream absolutely wonderful. We need renewal. We need change for the better. If people themselves are unable or unwilling to change their ways, then Nature will do it for them. Imagine a world without Gary Lineker, without Coutts, without BBC. Absolutely marvellous.

Jeremy Hunt: November 17th 2022 - Tax Day

 

November 17th 2022 - Tax Day

A hole in public finances of  more than 50 billion Pound will have to be plugged. Apart from the prospect of budget cuts affecting services, the alternative is a massive amount of tax increases.

Kwasi Kwarteng was slaughtered, thrown to the wolves, because he wanted to implement Liz Truss policies of tax reductions. What will happen to Jeremy Hunt when he announces a budget that contains punitive measures?

Let us remember that on the first round of the leadership election that led to the Premiership of Liz Truss the now Chancellor of the Exchequer didn't manage to progress beyond the first round. He was not popular among MPs and was not popular among the Membership of the Conservative Party. Now, the same man is going to propose a budget that goes against what is the declared ideological stance of the Conservative Party. Rising energy costs, rising interest rates plus rising taxes. If you are a business owner struggling to survive in the present financial environment, how are you going to react? Will you minimize your business to reduce fixed costs and in doing so sent your staff to the queue of the unemployed? A very harsh winter coming for those who lose their jobs when families are already struggling to pay for rental accommodation because they don't have the means to afford mortgage payments.

Wasn't Rishi Sunak the one who suggested that we should have a long term approach instead of shock therapy? Will such a budget be compatible with long term thinking? If Jeremy Hunt goes to far, this could the end of Jeremy Hunt and also the end of an already wavering Rishi Sunak? What next? Another leadership election?

Just a few months ago it was reported that recent interest rates will put more than 500,000 mortgages in jeopardy. Will more taxes and more unemployment make the situation better or worse? If the mortgage business falters, the financial system as a whole will be in serious trouble. We don't need even to explain what a wave of mortgage and load defaults will do to the economy.

Moscow and London: How signals are interpreted

 

How signals are interpreted

In 1991, the Soviet Union came to an end and this was very much the consequence of the efforts to remain ahead during the so called Cold War. The Soviet Union had to invest a vast amount of resources to remain significant in the arms race and it came the point when it could no longer afford to keep up because it did not have the financial muscle to do so.

The resignation of Mikhail Gorbachev as Soviet President is very much the end as soon after the Soviet Union disintegrated, leaving the USA as the one major superpower without any close competitors as China itself was far from being what China is today - economically, technologically and militarily. It could be said that the USA could attack Yugoslavia and dismember Yugoslavia without a UN mandate and without any real opposition and this is something that could not have happened if the Soviet Union had been around with the power to prevent such attack.

Having said that, 2022 is a different story. The Russian Federation is much more powerful than the Soviet Union for several reasons and one of them is the fact that the Russian Federation like China are much more homogenous countries with less ethnic and political contradictions. The Russian intelligence networks was magnifically helped by the fact that former Warsaw Pacto countries and regions were integrated into the European Union. If you were to look for an image to represent what has happened the Trojan Horse comes to mind.

The USA has used Britain as an extension of the USA in Europe and beyond. The USA has used Britain to justify USA agendas before the American people. If Tony Blair had not joined forces with George Bush Junior, it would have been difficult for the American President to sell his agenda to the American people. Britain has been used as a junior partner and as a propaganda tool and Britain has had to pay a very high price for it. It happened in Iraq and it happened in Afghanistan and it is happening in Europe. Inflation and financial difficulties that Britain is facing don't come out of nowhere. They are the direct result of sanctions and other measures taken against the Russian Federation that have had a boomerang effect not just in Europe, but worldwide. What happens when oil prices measured in US Dollars go up? Britain will pay higher prices not just because of market prices going up, but also because the loss of value of Pound means that Britain will need a lot more Dollars to pay for energy supplies and this has a direct impact on the British economy. If the Treasury cannot keep up with increasing expenditure and if the private sector in Britain has to translate cost into prices charged to consumers, industrial unrest is already on the horizon.

Just a few days ago, the British government was offering salary increases of 3% when inflation was already at 9% and more. Active workers will suffer and pensioners will suffer when the government is not able to adjust salaries and pensions taking into account the rate of inflation. The private sector already hit very badly by Covid, hit now both by inflation and consumption reduction will face an even harsher economic environment.

Liz Truss as Foreign Secretary said that she was in favour of cutting down the manpower of the British Armed Forces at a time when tensions are rising and there is the prospect of open conflict with both the Russian Federation and China. While would the UK be talking about cutting down its military capabilities? While is she asking other countries to increase their defense budget? My educated guess is that Britain does not have what it takes to beef up its Armed Forces and is therefore asking others to invest more to level the field in terms of what NATO can do or not do. President Donald Trump raised the concern that USA was the one feeling the pain created by military expenditure while other NATO members were not doing enough. Chancellor Olaf Scholz talked about hundred billions of EUROs to beef up German military capabilities, but how does this fit in with the fact that Germany is facing serious issues when it comes not just to the availability of energy sources, but also to the cost of existing energy sources. When both big economic players like Bayer and Thyssen-Krupp and the trade unions talk about the risk of economic collapse, what will Olaf Scholz be willing to sacrifice to beef up the German military capabilities? When you look East, Poland was offering to send their outdated Mig fighter jets to Ukraine if the USA could give Poland F35s in exchange, something that was rejected outrightly by the USA. What about other countries of the NATO block and what about those who are not members of NATO? Do they have the financial muscle to beef up their military capabilities or will they always depend on what USA or Britain can give them? Germany made many promises, but has delivered none of them.

Behind the speeches, this is the reality and today the British Primer Minister Boris Johnson fell not because of the scandals involving sexual misconduct of Conservative MPs. He fell because of economic realities. What were Conservative MPs talking about? VAT and Corporation Tax. Britain has been overspending for several reasons, including the fight against COVID when caution regarding budget was put aside to deal with a national emergency. On top of that, there is another national emergency created by British geopolitical decisions that have backfired. 

Look at the economy. For decades, Britain had remained relatively stable with very low interest rates and a significantly higher rate of employment and low prices in the shops. As the CEO of Poundland explained, he used to pay about 2,000 Pound for a container and now the price has jumped and it costs 20,000 Pound to bring imported products to the United Kingdom. Add to that fixed overheads and utilities and economic margins are dramatically reduced. This is not sustainable and on top of it the devaluation of the Pound compared to the US Dollar will make imports ever more expensive. Put aside Poundland and the situation many importers and exporters face and focus on food supplies. If Britain imports 60 per cent of what Britain consumes, then the costs of food will rise exponentially combining importation, transportation and distribution and costs involved in retail operations. Retail costs have been reducing by reducing manpower at the shops. You see today that the number of employees employed by retailers has been reduced with the introduction of automation. Automation reduces the numbers of jobs across the board whether we are talking about banking and financial institution, retailers and even transport. Much of the dispute affecting transport and leading to strikes is due to the declared intention of cutting jobs to cut costs. Having said that, if jobs been eliminated in one segment of activity are not created in other areas, the welfare bill will have to rise to pay for unemployment benefits and other social benefits in a country in which the number of non active population is rising while the number of those active at work is falling. This happens naturally because of an ageing population, but it is accelerated when people who are still fit to remain active lose their jobs.

What happened to the Soviet Union will happen to Britain. There is a time when your economy is not strong enough and everything is translated into accumulated and rising debt and when this happens there are social and political consequences.