Well, I told you what to look out for in yesterday’s Autumn Statement. And it turned out I was right, in my own little way.
I told you that the statement was a chance for us to test our theory. The anti-establishment votes here and in the US weren’t just a repudiation of the political status quo, but the economic and monetary status quo too.
As Tim Price said in last night’s 2017 “Wealth Summit” (more on that in a second), the gigantic monetary stimulus – quantitative easing (QE), zero and negative interest rates – has been a disaster. It hasn’t delivered the kind of growth it was supposed to. And it’s distorted the markets in such a way that financial asset holders (richer people) have made money while working incomes haven’t grown.
I told you to look out for signs that government spending is taking the lead from monetary stimulus. If that’s the case it’s clearly inflationary, which would be bad for bonds and good for… well, we’ll come to that in a second.
The point is: we got one!
It wasn’t a huge move. Chancellor Philip Hammond announced the creation of a new £23 billion National Productivity Investment Fund. Most of it will be spent on two particular things: increasing productivity and building houses (and the infrastructure to support new houses). The move will be funded by increased borrowing.
It wouldn’t surprise me if at some point in the future we saw this funded by monetary policy. The government creates the fund to build things. Then, quietly, the Bank of England steps in to start funnelling “stimulus” into the fund.
You don’t announce it all at once. You do it quietly, without fanfare and probably invent a new jargon-heavy term for it. But in that way we get the direct monetisation of government spending. We print and spend money in one go. It’s another step on the road to helicopter money.
By the way, Akhil Patel told me yesterday that the focus on housing by the government is what you’d expect at this point in the property cycle. But his ideas are more expansive – and predictive – than a £23 billion building binge.
Akhil thinks there’s evidence stretching back 200 years that we’re in the middle of a huge “upcycle” for UK property. Not only that, he thinks that by understanding the property cycle you can start to understand where the stockmarket will go next.
I can’t do the idea justice in a few lines here. But Akhil’s research is fascinating and, if he’s right, could make you a much more informed investor. At the very least, you’ll want to read it if you own a property.
The focus on productivity is, if anything, even more important than housing. I wrote about this earlier in the year, before the Autumn Statement. Here’s what I had to say then:
For every exponential growth curve describing technology advancing at a rapid rate… there’s an equal and opposite chart showing debt – national and personal – taking off. At a time when economic growth is minimal that leads to a nightmare scenario: either default, mass inflation or wealth repression (stealing from the prudent to pay for government borrowing).
The only other way out is growth. That’s a problem. And the only genuinely viable way out is for technology to provide a serious productivity boost. That’s doubly true of Britain. Our productivity record is shameful. As a Telegraph piece noted over the summer:
“It’s not just the US and Germany that the UK lags, but France, the Netherlands, Sweden and even Italy. Even narrowing the margin just a little would pay big dividends.”
Behind France! That’s an eye opener, particularly given the way the media portrays the French economy. It’s vital we sort this out. Productivity gains – getting more output for less input – is how you really grow an economy.
The chancellor made direct reference to this yesterday. And rightly so. Productivity gains are the only real way to increase the national wealth: to get more output for less input.
I’ve no idea if the government borrowing money to increase productivity will work. Likely not. Private enterprise investing in well-run R&D is more likely to lead to bigger gains in productivity and profitability. More on that tomorrow.
But to me, when you’re considering productivity it’s hard to look past technology. In fact, if I’m right, technological advances may be the only thing that could drag Britain (and the world) into growing enough to pay its debts down. I outline the four revolutionary technologies you need to understand here.
On that note, I may have to cut this Capital & Conflict short. As I said, last night I hosted a “2017 Wealth Summit” with four of our in-house experts: Charlie Morris, Tim Price, Eoin Treacy and Akhil Patel. It was a great event. I need to spend the rest of the day watching it all back and pulling out the most important ideas you need to understand.
I’ll share what we talked about as a video, podcast and research report as soon as I can, so you can consume it in any format you like. But the highlights for me were our discussions on the threat to the European banking system, what to expect from property, why some banks (not European ones) could be a big buy for next year, and why bitcoin, biotech and Russia could all be buys for 2017.
More on that tomorrow. As always, if you have any questions, criticisms or feedback on today’s issue of Capital & Conflict, just write to me at [email protected].
Until tomorrow,
Nick O’Connor
Associate Publisher, Capital & Conflict
Category: Economics