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Category: Soap Box

Soapbox: From Shambles to Shambles

In the forests of paper that have been consumed dissecting the rise and fall of the departing British Prime Minister, Boris Johnson, you can search in...

12 July 2022

Gary Mead

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In the forests of paper that have been consumed dissecting the rise and fall of the departing British Prime Minister, Boris Johnson, you can search in vain for any reference to the incident, early in his career, that should have prevented him from ever becoming the UK’s political leader. The many scandals brought to light and which finally caused Conservative Party MPs to desert Johnson overlooked this.

The incident has a name: Darius Guppy.

In 1990, Guppy telephoned Johnson, then a young reporter with the Daily Telegraph based in Brussels, to ask for his help in tracking down the address of another journalist, Stuart Collier. Guppy served time in prison in 1993 for staging a fake £1.8 million jewellery robbery and claiming money from the insurers. Collier is thought to have been investigating this crime. Guppy was a school chum of Johnson – they both attended Eton.

The call was recorded. On the tape, Guppy asks Johnson if he can find and deliver Collier’s address. He tells Johnson he wants to scare Collier by getting heavies to give him “a couple of black eyes” and a “cracked rib”. Johnson is heard saying at the end of the call: “OK, Darry, I said I’ll do it. I’ll do it, don’t worry”. Johnson has been fined by the Metropolitan (the London) police force this year for breaching Covid-19 ‘lockdown’ rules. He is fortunate that he escaped being charged with conspiracy to commit aggravated assault from the Guppy incident.

Johnson leaves – reluctantly, without acknowledging any fault – and his Conservative Party successor inherits an economic shambles. Johnson boasted of ‘getting Brexit done’ but Brexit remains incomplete, thanks to unresolved issues over Northern Ireland. More than six years after Britain voted to leave the European Union (EU) the UK and EU are still squabbling over re-writing the rules. The great hope of some Conservatives was that Johnson would make good his promise to make a post-Brexit Britain “the greatest place on earth”, which probably deliberately echoed President Trump’s cry of ‘making America great again’. Yet the narrative of his premiership has been one of from shambles to shambles. Trump of course, borrowed from an earlier UK Conservative leader and Prime Minister, Margaret Thatcher who, in 1950, after years of UK Labour Party led decline, stated it’s time to “make Britain Great again”.

A busted economy?

Tim Graf, head of EMEA macro strategy at the US financial services company State Street, told Reuters the day following Johnson’s departure that his resignation “does little to change the macroeconomic reality for the UK or the market reality for the pound… The toxic mix of rising household costs… and slowing growth look likely to test any future leader”.

The list of depressing economic news for the UK has mounted steadily under Johnson and accelerated so far this year. Foreign direct investment (FDI) in the UK fell in 2017 (the year after the vote to leave the European Union) to £92.4 billion, against £192 billion in 2016. In the first quarter of 2022, the country notched up its worst balance of payments deficit on record, of 8.3% of gross domestic product (GDP) – meaning its imports exceeded the value of its exports by some £216 billion.

Reversing that will take an almighty effort but perhaps a recession – which will cut consumer spending – might come to the ‘aid’ of the new government. Under Johnson, public debt has risen to the highest amount of any modern prime minister; borrowing rose by almost £600 billion, almost £100 billion more than a previous (Labour Party) prime minister, Gordon Brown, borrowed after the 2008 Great Financial Crash. Johnson supervised a government that borrowed at a record rate and hiked taxes to a level not seen since the Second World War. The Pound Sterling has weakened to a new two-year low, making imports more expensive, although exports more competitive. All round it was a record that might be envied by the opposition Labour Party, long caricatured as the ‘tax-and-spend’ party in UK politics.

The long-term economic prospects for the UK currently look grim. The Office for Budget Responsibility (OBR), which although funded by government was established to provide independent long-term economic forecasts, says Britain faces an unsustainable debt burden of more than 320% of GDP in 50 years’ time. That debt could reach 430% of GDP by the same time if Britain raises its defence spending to 3% of GDP, which it may have to, if it is to stand by its promises to Ukraine and its pledges to Nato.

Analysts at Citi, the global investment bank, offer a very downbeat assessment: “In the months ahead, we see a UK heading into a once-in-a-generation squeeze in living standards, absent a defined strategy, and facing deep governmental division. The risk of profound policy error is therefore significant”.

The corrosion of cake-ism

What on earth is ‘cake-ism’? ‘Cake-ism’ is the belief that you can have your cake and eat it. It’s rather like Modern Monetary Theory (about which we have heard very little recently), the proposition that governments can simply create more money without adverse consequences. Cake-ism sums up Johnsonian economics – lavish unfunded spending promises accompanied by higher taxes to cover some of the ‘gap’.

The UK is now in a state of limbo, until a new Conservative Party leader (and therefore Prime Minister) is chosen and a new government in place. The government has provided more than £30 billion in direct support for households, but this vast amount of subsidy is only helping households to stand still – real per capita gross domestic product (GDP) has grown very slowly for the past 200 years, just 1.3% a year. Economic growth is the only cure for the country’s serious income inequality, and while the numerous candidates to become the next PM all recognise that, none have given an inkling of how they might achieve it. With a European war and inflation about to hit 11%/year, a worse time to have a paralysed government is difficult to imagine. Later this year the average household’s energy bill is set to exceed £3,000/year (more than $3,590, and the ‘cost of living crisis’ for a typical UK family will drag on into next year – the shambles will continue.

If a recession is coming – and many economists believe it is – then all assets are likely to drop in value, to lose money. Higher interest rates – especially in the US – will help the US Dollar to remain the cleanest washing among the dirty pile, but that cannot conceal the fact that the Dollar will lose this year almost 10% of its purchasing power of 2021. The clamour for government protection against the rising cost of living – i.e. for subsidies – grows, the ability of governments to provide that protection without printing or borrowing more money is dependent on its ability to raise tax rates. Governments are between a rock and a hard place and to keep voters happy they will choose the easiest path.

It is time to start building personal defences, by accumulating one asset that is generally considered more recession-resilient than most – gold. Particularly when that gold can be used as everyday money, as with Glint. It’s a great feeling to know that you can pay your rising fuel bills with money that has been proven to increase in value over time, while your pounds or dollars are losing money hand over fist.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

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