7 ms·

British pound plunges, bonds sink after government announces tax cuts

35 points by harambae 4y ago

SQueeeeeL 4y ago
Holy shit, I just realized that tax cuts are basically stock buybacks at a national level. It's basically just a fiscal way to self cannibalize an entity to the benefit of those already within it at the expense of it's long term health. Also, it's nice to know that bad fiscal policy actually has demonstrable repercussions on an international stage, even if currency value is a very neoliberal indicator.
- nine_zeros 4y ago
  Most non-US countries are very aware of tax cuts because they can see the impact of it immediately in currency drops. In America, tax cuts lead to inflation but only a year or two late. We are suffering now and blaming everything but the tax cuts and handouts for companies.
  - landemva 4y ago
    > In America, tax cuts lead to inflation I would find this surprising. Do you have charts for this, and which historical timeframes?
    - shitpostbot 4y ago
    - voxic11 4y ago
      Doesn't it make pretty intuitive sense? If the government cuts taxes while keeping spending the same it causes an increase in the overall supply of money. A basic market principle is that increasing supply in the face of stable demand leads to a decrease in price. A decrease in the price of money is inflation.
      - albertop 4y ago
        Nope. Tax cuts as shown throughout history increase growth and inflation tends to be low during high growth since there is an rise in production and productivity.
        voxic11 4y ago
        How much growth did we see from the Tax Cuts and Jobs Act? Doesn't seem like much if any https://www.brookings.edu/research/searching-for-supply-side-effects-of-the-tax-cuts-and-jobs-act https://www.brookings.edu/research/searching-for-supply-side...
        albertop 4y ago
        Tax cuts are an effective way to bolster a weak economy and create jobs—as long as they are targeted at the bottom 90% of income earners. - findings from NBER - https://www.nber.org/papers/w21035 https://www.nber.org/papers/w21035
      - radford-neal 4y ago
        You've got to look at the combination: (1) Cut taxes, (2) Cut spending too? Or not, (3) If not, is the increased deficit financed by selling bonds to the public, or to the central bank? An increase in the money supply comes about only if (1) taxes are cut, (2) spending isn't cut, (3) the central bank buys the bonds issued as a result, creating the money to do so out of nothing. A deficit financed by selling bonds to the public might perhaps increase expectations that sometime in the future the central bank will buy bonds using newly created money, but that is likely to have a more muted effect than them actually creating money now.
        imtringued 4y ago
        The central bank buys the bonds off commercial banks so you need the commercial banks to create the deposits that the government can actually spend. If the goverment was sitting on central bank money it would have to issue physical dollar notes to actually spend the money.
  - nso95 4y ago
    Why is it different for the US? Genuinely curious.
    - nine_zeros 4y ago
      Being the reserve currency, every country wants dollars. Every other country needs dollars to do trade, even among each other. With a tax cut, US consumers have more money which they spend on imported goods. This supplies dollars to the rest of the world, increasing the value of 196 currencies marginally. You can think of USD being in demand from 8 billion people. If US dollar wasn't a reserve currency, a tax cut would have increased supply of dollars with consumers but demand would only be from the 330 million people in America. High supply of money, no change in supply of goods would then cause inflation.
      - landemva 4y ago
        > With a tax cut, US consumers have more money which they spend on imported goods. So the dollars go overseas buying imported goods and then partially those overseas dollars buy USA treasury debt. This puts the price inflation, if any, overseas and then "sterilized" into Treasuries. This is why USA consumer prices and gold didn't go to the moon after 2008 bank bailouts.
- ParksNet 4y ago
  Given the demographic challenges of Europe (sub-replacement fertility of the most productive and the vast influx of net-negative aliens), it is wise to crash the system: Abandon welfare, pensions and subsidized healthcare. With those shackles thrown off, countries have a chance of regrowth. The nation state can maintain national (and border) security, run natural monopolies, regulate pollutants, and that's it. Fund those services with Land Value Taxes. The alternative is endlessly raising taxes and throwing the country into a deaths-spiral.
  - kwere 4y ago
    the supidiest thing european people (italian here) did was trusting politicans into handling their pension contribution and return it 40 years later with inflation adjusted distibution, its literally a ponzi scheme
  - feoren 4y ago
    > (sub-replacement fertility of the most productive and the vast influx of net-negative aliens) Is there really anything more to this comment than "white children good; brown children bad"? Every study I've ever seen on the effects of immigration conclude that immigration (at the levels seen in Europe and UK) is extremely healthy and that immigrants are "net-positive" (to use your heavily judgy wording) in almost every sense.
  - imtringued 4y ago
    Please don't throw things out that work, only throw the things out that are actually broken. For the vast majority of people in Germany public healthcare works fine and it isn't really subsidized, just mandatory to for employees to pay in. Government managed healthcare only has one goal in Germany, prevent long term diseases and cure diseases rather prolonged treatment of symptoms as the latter is money thrown out the window.
- aauchter 4y ago
  Isn't it the opposite, i.e. share issuance? With lower taxes the government leaves more money in the system (and generally borrows/prints more) which lowers the value of each unit of currency, hence the pound declines.
  - SQueeeeeL 4y ago
    Typically, they just print more to compensate. In this case, the UK explicitly stated this was a debt funded tax cut, so spending remained constant while revenue declined.
  - imtringued 4y ago
    If you could somehow revive Keynes for a day he would have said "raise taxes and pay off government debt to keep inflation in check" Keynes policy proposals for the government have an obvious flaw, nobody really follows them unless he gives the government permission to spend (which is obviously a valid move in a depression or during COVID). This is why I think Keynes theories have had more success in montary policy than fiscal policy.
LatteLazy 4y ago
Our third PM in 6 years. Yet zero new ideas, zero ability to think beyond the immediate crisis and zero ability to push through any hard choices. Things have to get worse for the UK, so people wake up, so we get a marginally less shit government.
- MrMan 4y ago
  beg to get back into the EU before UK is just Wales and England with no GDP.
  - LatteLazy 4y ago
    We should, though I don't think Scotland or NI will be allowed to leave this shitty party, "misery loves company" is the UK motto. Realistically, we have to wait at least another decade for a generation of crazies to die off. Then we can try and be a country again. Not many people know, but when we first tried to join the EU (then the European Communities), our application was veto'd twice by France. Having been proven right about us, I am not sure they'd let us in again. https://en.wikipedia.org/wiki/United_Kingdom_membership_of_the_European_Union#:~:text=The%20UK's%20applications%20to%20join,the%20British%20around%20the%20table https://en.wikipedia.org/wiki/United_Kingdom_membership_of_t....
    - mywittyname 4y ago
      I'm not sure the British people would be willing to accept the sorts of concessions EU members are likely to impose on them for re-entry. Given the mess that was Brexit, I could see, at minimum some sort of financial penalty paid directly by the British people (since they would be voting to leave) and a forced adoption of the Euro. But who knows what the next 20 years holds for the Eurozone.
      - LatteLazy 4y ago
        The British people basically divide into 2 groups: productive younger (<40) workers who are getting fucked in every imaginable way, and older entitled idiots. Sooner or later the older ones will die out, and the idiots will always be there but won't have a majority anymore. Only the second group give a shit about nationalism and voted for Brexit (and only because they knew THEY would not pay for it). The other half of us not only don't care, but certainly don't see why we should pay for it. God I wish I was young enough to emigrate easily.
Havoc 4y ago
The part I can't wrap my head around is how the Tories (UK Rep. basically) behaves like a party for the 1% yet still manages to win democratic votes
- yrgulation 4y ago
  I fail to see the issue with these tax cuts. Lower stamp duty, weaker pound meaning increased exports, a lower tax bracket, and a relaxation of ir35 rules.
  - Havoc 4y ago
    The optics of it are shockingly bad. Boosting banker bonuses at a time when average people are talking about "heat or eat". Or for that matter the lower taxes you mention - the top bad gets a -5% while the bottom band gets a -1%. There are definitely some good bits for everyone in there (e.g. energy cap) but its very stacked towards top end.
- ETH_start 4y ago
  Because not everyone buys into the zero sum thinking that you do. The US created enormous private fortunes in the late 19th century, and saw massive wage growth for unskilled labor during the same period. China created more billionaires than any country in history over the last 30 years and concurrently saw enormous wage growth: https://www.statista.com/statistics/743509/china-average-yearly-wages-in-manufacturing/ https://www.statista.com/statistics/743509/china-average-yea...
  - Havoc 4y ago
    You really think the average guy on the street hears about rule changes to boost banker bonuses and thinks "great"? From what I can tell the mood is more "eat the rich".
  - imtringued 4y ago
    Let me tell you the problem with capitalism, there is nothing about capitalism that forces people to invest their money, as people get richer they keep a bigger portion of their net worth liquid, 10% is the rule of thumb and the liquid assets are used for speculation rather than long term investment. As interest rates approach zero, the yield curve starts getting compressed, to maintain a healthy yield curve, the yield on extremely short term assets like 1 month treasury bonds and liquid demand deposits in a bank account actually needs to be slightly negative, about -3% so that people have a "profit maximization motive" to buy long term assets at 10 years with 0% or 20 years with 1% instead of speculating with their money. Tax reform might be great but simplifying tax codes is much better than just lowering them.

35 points by harambae 4y ago

Holy shit, I just realized that tax cuts are basically stock buybacks at a national level. It's basically just a fiscal way to self cannibalize an entity to the benefit of those already within it at the expense of it's long term health. Also, it's nice to know that bad fiscal policy actually has demonstrable repercussions on an international stage, even if currency value is a very neoliberal indicator.

nine_zeros 4y ago
Most non-US countries are very aware of tax cuts because they can see the impact of it immediately in currency drops. In America, tax cuts lead to inflation but only a year or two late. We are suffering now and blaming everything but the tax cuts and handouts for companies.
- landemva 4y ago
  > In America, tax cuts lead to inflation I would find this surprising. Do you have charts for this, and which historical timeframes?
  - shitpostbot 4y ago
  - voxic11 4y ago
    Doesn't it make pretty intuitive sense? If the government cuts taxes while keeping spending the same it causes an increase in the overall supply of money. A basic market principle is that increasing supply in the face of stable demand leads to a decrease in price. A decrease in the price of money is inflation.
    - albertop 4y ago
      Nope. Tax cuts as shown throughout history increase growth and inflation tends to be low during high growth since there is an rise in production and productivity.
      - voxic11 4y ago
        How much growth did we see from the Tax Cuts and Jobs Act? Doesn't seem like much if any https://www.brookings.edu/research/searching-for-supply-side-effects-of-the-tax-cuts-and-jobs-act https://www.brookings.edu/research/searching-for-supply-side...
        albertop 4y ago
        Tax cuts are an effective way to bolster a weak economy and create jobs—as long as they are targeted at the bottom 90% of income earners. - findings from NBER - https://www.nber.org/papers/w21035 https://www.nber.org/papers/w21035
    - radford-neal 4y ago
      You've got to look at the combination: (1) Cut taxes, (2) Cut spending too? Or not, (3) If not, is the increased deficit financed by selling bonds to the public, or to the central bank? An increase in the money supply comes about only if (1) taxes are cut, (2) spending isn't cut, (3) the central bank buys the bonds issued as a result, creating the money to do so out of nothing. A deficit financed by selling bonds to the public might perhaps increase expectations that sometime in the future the central bank will buy bonds using newly created money, but that is likely to have a more muted effect than them actually creating money now.
      - imtringued 4y ago
        The central bank buys the bonds off commercial banks so you need the commercial banks to create the deposits that the government can actually spend. If the goverment was sitting on central bank money it would have to issue physical dollar notes to actually spend the money.
- nso95 4y ago
  Why is it different for the US? Genuinely curious.
  - nine_zeros 4y ago
    Being the reserve currency, every country wants dollars. Every other country needs dollars to do trade, even among each other. With a tax cut, US consumers have more money which they spend on imported goods. This supplies dollars to the rest of the world, increasing the value of 196 currencies marginally. You can think of USD being in demand from 8 billion people. If US dollar wasn't a reserve currency, a tax cut would have increased supply of dollars with consumers but demand would only be from the 330 million people in America. High supply of money, no change in supply of goods would then cause inflation.
    - landemva 4y ago
      > With a tax cut, US consumers have more money which they spend on imported goods. So the dollars go overseas buying imported goods and then partially those overseas dollars buy USA treasury debt. This puts the price inflation, if any, overseas and then "sterilized" into Treasuries. This is why USA consumer prices and gold didn't go to the moon after 2008 bank bailouts.
ParksNet 4y ago
Given the demographic challenges of Europe (sub-replacement fertility of the most productive and the vast influx of net-negative aliens), it is wise to crash the system: Abandon welfare, pensions and subsidized healthcare. With those shackles thrown off, countries have a chance of regrowth. The nation state can maintain national (and border) security, run natural monopolies, regulate pollutants, and that's it. Fund those services with Land Value Taxes. The alternative is endlessly raising taxes and throwing the country into a deaths-spiral.
- kwere 4y ago
  the supidiest thing european people (italian here) did was trusting politicans into handling their pension contribution and return it 40 years later with inflation adjusted distibution, its literally a ponzi scheme
- feoren 4y ago
  > (sub-replacement fertility of the most productive and the vast influx of net-negative aliens) Is there really anything more to this comment than "white children good; brown children bad"? Every study I've ever seen on the effects of immigration conclude that immigration (at the levels seen in Europe and UK) is extremely healthy and that immigrants are "net-positive" (to use your heavily judgy wording) in almost every sense.
- imtringued 4y ago
  Please don't throw things out that work, only throw the things out that are actually broken. For the vast majority of people in Germany public healthcare works fine and it isn't really subsidized, just mandatory to for employees to pay in. Government managed healthcare only has one goal in Germany, prevent long term diseases and cure diseases rather prolonged treatment of symptoms as the latter is money thrown out the window.
aauchter 4y ago
Isn't it the opposite, i.e. share issuance? With lower taxes the government leaves more money in the system (and generally borrows/prints more) which lowers the value of each unit of currency, hence the pound declines.
- SQueeeeeL 4y ago
  Typically, they just print more to compensate. In this case, the UK explicitly stated this was a debt funded tax cut, so spending remained constant while revenue declined.
- imtringued 4y ago
  If you could somehow revive Keynes for a day he would have said "raise taxes and pay off government debt to keep inflation in check" Keynes policy proposals for the government have an obvious flaw, nobody really follows them unless he gives the government permission to spend (which is obviously a valid move in a depression or during COVID). This is why I think Keynes theories have had more success in montary policy than fiscal policy.

LatteLazy 4y ago

Our third PM in 6 years. Yet zero new ideas, zero ability to think beyond the immediate crisis and zero ability to push through any hard choices. Things have to get worse for the UK, so people wake up, so we get a marginally less shit government.

MrMan 4y ago
beg to get back into the EU before UK is just Wales and England with no GDP.
- LatteLazy 4y ago
  We should, though I don't think Scotland or NI will be allowed to leave this shitty party, "misery loves company" is the UK motto. Realistically, we have to wait at least another decade for a generation of crazies to die off. Then we can try and be a country again. Not many people know, but when we first tried to join the EU (then the European Communities), our application was veto'd twice by France. Having been proven right about us, I am not sure they'd let us in again. https://en.wikipedia.org/wiki/United_Kingdom_membership_of_the_European_Union#:~:text=The%20UK's%20applications%20to%20join,the%20British%20around%20the%20table https://en.wikipedia.org/wiki/United_Kingdom_membership_of_t....
  - mywittyname 4y ago
    I'm not sure the British people would be willing to accept the sorts of concessions EU members are likely to impose on them for re-entry. Given the mess that was Brexit, I could see, at minimum some sort of financial penalty paid directly by the British people (since they would be voting to leave) and a forced adoption of the Euro. But who knows what the next 20 years holds for the Eurozone.
    - LatteLazy 4y ago
      The British people basically divide into 2 groups: productive younger (<40) workers who are getting fucked in every imaginable way, and older entitled idiots. Sooner or later the older ones will die out, and the idiots will always be there but won't have a majority anymore. Only the second group give a shit about nationalism and voted for Brexit (and only because they knew THEY would not pay for it). The other half of us not only don't care, but certainly don't see why we should pay for it. God I wish I was young enough to emigrate easily.

Havoc 4y ago

The part I can't wrap my head around is how the Tories (UK Rep. basically) behaves like a party for the 1% yet still manages to win democratic votes

yrgulation 4y ago
I fail to see the issue with these tax cuts. Lower stamp duty, weaker pound meaning increased exports, a lower tax bracket, and a relaxation of ir35 rules.
- Havoc 4y ago
  The optics of it are shockingly bad. Boosting banker bonuses at a time when average people are talking about "heat or eat". Or for that matter the lower taxes you mention - the top bad gets a -5% while the bottom band gets a -1%. There are definitely some good bits for everyone in there (e.g. energy cap) but its very stacked towards top end.
ETH_start 4y ago
Because not everyone buys into the zero sum thinking that you do. The US created enormous private fortunes in the late 19th century, and saw massive wage growth for unskilled labor during the same period. China created more billionaires than any country in history over the last 30 years and concurrently saw enormous wage growth: https://www.statista.com/statistics/743509/china-average-yearly-wages-in-manufacturing/ https://www.statista.com/statistics/743509/china-average-yea...
- Havoc 4y ago
  You really think the average guy on the street hears about rule changes to boost banker bonuses and thinks "great"? From what I can tell the mood is more "eat the rich".
- imtringued 4y ago
  Let me tell you the problem with capitalism, there is nothing about capitalism that forces people to invest their money, as people get richer they keep a bigger portion of their net worth liquid, 10% is the rule of thumb and the liquid assets are used for speculation rather than long term investment. As interest rates approach zero, the yield curve starts getting compressed, to maintain a healthy yield curve, the yield on extremely short term assets like 1 month treasury bonds and liquid demand deposits in a bank account actually needs to be slightly negative, about -3% so that people have a "profit maximization motive" to buy long term assets at 10 years with 0% or 20 years with 1% instead of speculating with their money. Tax reform might be great but simplifying tax codes is much better than just lowering them.