stewarthotston

Belonging

Or how to make friends with your average man

Men and friendships are quite strange. I’ve been through periods in my life where I’ve struggled to maintain meaningful friendships. Part of this is because many male friendships are based on belonging or taking part in themed activities where the theme is the point, not the friendship.

Consider supporting a football club or golf or Rotary. Think about more rarified clubs like those who do ultramarathons or martial arts or belong to a reading group. Much of the time the nature of the people in the club doesn’t matter – they can be ‘a character’ or stand-offish or aloof or awkward but it doesn’t matter (thankfully) because we’re all here to do the same activity.

This is good because these clubs and social activities give us a route to making social connections we would otherwise not have. And loneliness among men is a chronic problem – and only grows worse as we get older sadly.

For me though, belonging to a club has never quite delivered the kind of relationships I want. The reason? I want to talk deep stuff, want to talk about how I’m feeling. I want to share where I’m scared and where I’m nervous and I want to hear about that for others. I don’t really, always, want to fix stuff even if that’s my go to mechanism in the way society has taught me to feel useful.

This is a problem because society, the way we teach men to be in relationships, strongly suggests that men need to not talk about their feelings and to try to conform to what the majority want. (I’m not saying this is unique to men, just that it’s a design feature of our cultural conditioning here in the UK).

Becoming a father has taught me as much about my relationships as it has about what I want from them. I have thought long and hard about what kind of relationships I wanted with my children and how to foster those and, largely, that’s what I’ve been fortunate enough to develop. I wanted relationships where I could be honest, where I would explicitly trust them and where they could, in return, risk trusting me. I’ve also thought about how I rolemodel other ways of being a man to both of them. For them both I’ve wanted them to understand men can be affectionate, prepared to admit they’re wrong, open about failure and success and capable of being openly excited. This has required me to change how I am as a person and, honestly, it’s been a strange but completely satisfying experience.

I’ve also explicitly set out not to fix every problem. I’ve set out to be someone who they can talk to, can ask for help from but also who will be there as they experiment with the clear message that failure is a normal part of life and, when it happens, we should talk about it, how we feel about it and how we respond both to the failure but also those feelings.

If this sounds sappy…well I don’t think it is. It’s been a hard process to choose that and then live it.

It’s also informed my other friendships. As one of my best friends commented a while back ‘you’re one of the most buttoned up people I know’. They meant, I think, that I keep my feelings to myself.

They are right. I do it because i fear people don’t want to know how I feel, that they see worth in me being capable not in being vulnerable. I fear that I am less likeable if I am expressive of my feelings. All these things are lies I believe in my soul. They are lies I’ve been taught throughout my life and that I see men being taught every day by each other, by women and by society through the stories we consume and the narratives we see across work, politics and daily life.

Of course I want to be indispensable. Of course I want to be a hero to others, to be respected and loved and seen as a pillar. But I’ve also got to reject these things because the way they’re defined is too alone, to much focused on what I do, not who I am in my community.

I’ve talked a lot about community recently as anyone who heard me speak at EasterCon could probably testify. The more I think about what I want from life the more I know it’s community where together we make great things, where together we live a good life and where together we understand our human frailties and accept one another completely.

I’m not losing my individuality but I think that I’m really only me when I’m also part of a community and that is why loneliness is so damaging. Sure, people come in flavours and many love alone time but none of us are uplifted by loneliness.

The cure to loneliness is belonging to a club in the same way that the the solution to being hungry isn’t going shopping. It’s part of it but it isn’t the whole thing. In philosophical terms it’s necessary but it isn’t sufficient.

Belonging is crucial. But belonging is so much more than doing something with someone else.

What I have found is that, largely, when I’ve taken the risk of talking about my feelings and my desires and my hopes and failures with others they talk about those things too. There’s some permission here that we’re all looking for but we too rarely offer one another.

If you have the chance today…try it with someone and see what comes back. It is the first step to building proper friendships.

May 25, 2023 0

Men and Anger

This is my second attempt at writing this. The first was a long tedious exploration of my growing up and was getting out of hand. Suffice to say I’m someone who’s been angry for most of their life. Like a simmering background discontent that, very occasionally, gets out of hand completely.

In other words, you don’t need to know all the guff about my childhood – basically like many of those who count themselves as men I’ve experienced the rage inside my own head for a long time now.

I want to start with some truths about (my) anger.

It’s always there. I’m always kind of angry.
Part of me is always ready to take offence
I hate it
I love it
I experience the world as one which thinks anger is evil by definition (the tone policing exemplified by Star Wars of all things (anger leads to hate etc.) just highlights how taboo anger is for our society)
I experience the world as one which has no idea how to safely handle anger
What I get angry it can be both profound and ridiculous at the same time
People fear my anger (not in a good way)
I hate the idea of people being scared of me
For me, anger is often part of an emotional bundle that includes grief, feelings of powerlessness, despair, anxiety and disappointment.

I don’t know why I’m always angry. It’s not the knock someone’s teeth out kind of anger in the same way that being optimistic doesn’t mean I think I’m going to win the lottery. It simply means I’m kind of ready to express anger in the same way I’m ready to see the best in a situation.

I am a bundle of insecurities about belonging, competence, being safe and loved. As such I have a number of pressure points that when pressed result in a tendency for an automatic response involving anger regardless of whether that is ‘reasonable’. Anger is not necessarily an outburst. For some it’s likely to be a shutting down, for others fleeing. For me it’s expressed as resistance, justifying myself, trying to fix a situation and, possibly, looking at how someone else got it wrong.

So I’d say we need to think about anger as something other than shouting and ranting and violence. Public debate has distilled ‘fury’ into meaning just that. We need to reject that narrative if we want to have a useful conversation about anger. Anger is more than that – it’s an emotion that frequently is about protecting boundaries, defensive in its origination even if that drives an offensive response.

I hate my anger because too often defence is where i go first. I’d rather go to understanding, to wise old perspective, but instead I start with being defensive. I hate it because it can stifle a conversation and a relationship, because it can mean people aren’t honest because they fear the consequences. It can mean we literally can’t hear the other person. It can mean we assume the worst of someone who, if we stopped to think about what we knew of them, we’d know the situation was more complex and we needed to be just as nuanced ourselves.

Too often I respond in a binary fashion because I can’t handle the emotions I’m feeling NOT because the situation warrants it.

I also love my anger. Anger drives me to do things. It drives me to protect myself from abuse, from aggression and from bullies. When issues arise that demand a robust response, anger about injustice moves me more than eloquent reasoning.

Capitalism polices anger because it makes it easier to manage people if they’re docile. Anger moves people to reject what doesn’t work for them, makes protests more likely, makes the rich rightly fear (more than they already do). Capitalism works hard to suppress avenues for the expression of anger and dissent. Capitalism HATES dissent which can’t be co-opted into profit.

Politics should be our answer to that – except when it becomes the tool of the powerful. If you want to change a system then a constant low level of anger is better than any other motivator. Anger can be a hunger for justice.

Anger can be good and I love it for that. I’ve acted well numerous times because I was angry. Anger does not obviate reason and nor does it have to be blind. Anger can give us clarity and hope and power as much as it can make us stupid and cruel and dangerous.

The biggest problem I encounter is that there is no space to talk about anger (or other emotions). Angry men are seen as a problem. Angry women just as much to be honest but they’re dealt with by society very differently even if the outcome is the same – isolation, silencing and exclusion.

Partly this is because we’ve let anger become defined by extreme tropes – fury at this and fury at that. We’ve allowed representations of anger to become one dimensional tropes about men violently beating those who cross them. And let’s not even start on how society tries to suggest women can’t feel anger as if a good woman is always placid. Argh.

That is not a debate, that is what suppression looks like.

The biggest challenge for me is expressing anger safely – if such an idea isn’t an oxymoron. When I’m angry I have to find a way to process that emotion. I have to have a way of dealing with it that helps me address what caused it, what I can do about it and then allows me to move on. That moving on might look like dealing with the inciting incident (for example an act of injustice I’m on the end of or have observed).

Not to express my anger is potentially more damaging than expressing it. This is really important to me because the short term expression of anger via rants or attacks can feel devastating to those involved – but I truly believe anger can be expressed without it being damaging. The challenge is in finding space where that can be the case and in building relationships where that can be true.

I’ve absolutely been in relationships where any kind of criticism at all is responded to with anger, denial and an immediate breakdown in the relationship. You can’t legislate for that, only for your own forms of expression.

What does a safe expression of anger look like? Sometimes it’s taking a little time before you talk about it, others it’s about having friends with whom you can express your emotional self who will both listen without judgement and then call you out where you’re being a fool. Friends who can’t be honest with you are not friends and they’re not protecting you, they’re actively harming you. Good friends are mirrors to one another, for support and for challenge.

Safe expression means talking about it until you have the words that express how you feel and why. The first set of reasons and words we get are often not the ones where we settle. Time is crucial here. So is talking and talking and talking.

I think that safe expression about anger is being able to rant when necessary, probably with someone not involved who will let you get it out of your system before you then work with that anger to drive a constructive response.

Finally i think safe expression of anger is about being active. Addressing the situation and making a change.

I’m no psychologist. I’m barely au fait with my own motivations and triggers. But I know that anger left unexpressed is dangerous because it grows and festers and becomes something toxic. That toxicity can become a pattern of behaviour is it very hard to unlearn, especially if learned as a younger person.
I know that anger as talked about in wider society isn’t what i recognise in my own feelings.
I also recognise that anger as talked about in wider society is easy to be scared of and, honestly, it’s the kind of expression too many people have experienced and are, rightly, worried about.

I don’t want to under play the damage that toxic expressions of anger cause. Men do so much damage because they can and it’s not good enough. It’s never been good enough.

My plea here is that there has to be a way to talk about how we’re feeling, and that anger is a normal emotion and should be recognised as such, not suppressed. Men owe it those around them as much as they do themselves to talk about their emotions, to find ways of expressing their anger so that they can do so and still be seen as safe, as loving and as someone who does good.

Anger can be a force for good but in our society it’s been rendered a force of evil and men told they aren’t allowed to express it in any form. Part of that is social conditioning, part of that is, as I say above, our form of capitalism moving to suppress dissent of all kinds; where damage to property is more important to the courts and those in power than the oppression of people.

lastly, an apology – the above doesn’t really feel all that coherent. I could have just written that we need to talk about anger more. I hope it at least shows that it’s a complex subject that we, as people who call ourselves men, need to be more aware of because anger isn’t evil and we have to find a way to accept it’s part of who we are. Central to this exploration are friendships where we have space to talk about our anger, where we can explore it, reflect on it and find ways to make it constructive. The starting point for so many is that anger is absent until it’s entirely uncontrollable, damaging, hurting and destroying.

Men need friends because they’re angry.

May 9, 2023 0

On male friendship – what even is it?

This is a tough one. Where do we begin talking about male friendship?

I’m going to try to talk about it candidly. I’m certainly not a guru or an expert which I suspect will come through quite clearly. There’ll be no neat categorisations (although I’ll probably manage to squeeze in a list or two). I also don’t have any idea if the things I want to talk about are things that feature for me alone or for others too. It may be that I get sidetracked here or write more than one post but this is a beginning.

I find friendship difficult. By that I mean that I find the concept of having and being friends one of my heart’s desires but I also don’t really know how to do that. I moved around a lot as a kid. I was also the only brown boy in school (and then at A-levels too).

I remember being told I wasn’t welcome at the only Asian club at University because I wasn’t a Hindu (brought up a good atheist by parents desperate, I think, to integrate).

All this means I don’t really have friends from school (there are a couple on Facebook) and I have a few friends from University but most of the friends I have now are those who I’ve met and built relationships with as an adult. In that sense I have no nostalgia for being younger. My school days were absolutely not the best of my life.

I open there partly because it colours how I see friends, especially as someone who identifies as male. I don’t like watching sport and I don’t like drinking beer. I am, in many ways, that weird nerd whose interests are almost entirely his own.

If friendship is built on shared experience I’m not one for doing the kinds of activities that build it. I love running, reading, movies and writing. I’ve been a good fencer (a sport, sure, but hardly a team one), I love cooking and thinking about things. I also love parties and dancing and eating out with friends.

My friends are all over the place – some are like me in some ways but many aren’t. I’m the kind of person who can, because being a social chameleon was absolutely vital growing up, adapt to most situations but I’m not sure I’m the person you think of first to invite to things, to ask if I’m ok or to include.

Since I’m writing about friendship this is what I want – people who I can pour my heart out to, who I can be silent with, who I can share my failures with and with whom I can laugh, find/offer support and feel safe.

In practical terms I’m fairly rubbish at all of the above. I worry that telling people how I feel will alienate them, I worry that being silent bores them. I am frightened of admitting my failures and because most of life has been one where having space to be me has been lacking…well you can see the direction here.

Add to this the toxic and strained conversation about what being male looks like in the public space and it makes sharing these kinds of experiences and desires challenging.

My experience of the representation of male relationships is that they’re functional or sexual. We work together or we relate to sexual partners too often via ownership language rather than partnership language. i.e. where we come together it’s nearly always in a way that then separates us again.

I remember one baffling conversation with a friend who insisted that the entirety of Frodo and Sam’s relationship should be read in a gay context. When I challenged this (let’s not even start to talk class, trauma, education and the hierarchy of armed forces) by suggesting that men could have relationships as close as Sam and Frodo without it being seen via primarily a sexualised lens they were baffled. I wanted to challenge this because, whatever my sexual attractions I also want to have friendships that are so very deep as they are there. I want to be able to tell my male friends that I love them and for that to be understood for what it means. English is rubbish in this regard. Classical Greek at least has different words for different types of love. That would be far more convenient.

This friend didn’t say they didn’t have male friends like this, but they also admitted they couldn’t imagine it for themselves. My heart dies a little when I have these kinds of conversations.

I don’t really know where I’m going with this. I think the difficulties I experience in trying to be me with my friends are extremely complex. What is clear is that I don’t mean being me in the moment but I mean being me over the long term with people who grow to understand my rhythms; the threads which make me. I think these challenges are largely constructed (ie there’s nothing essentialist in them, they’re largely a product of the society I exist within) but that doesn’t make them any less constraining.

The life I’ve led also feeds right into the kinds of relationship I can sustain, the kinds I want and the kinds that threaten me.

So there’s a few subjects I’d like to think about at some other time.

anger and safety
belonging
whether a lack of common identities means we struggle to build meaningful relationships
loneliness among men
transgression and forgiveness
What it’s like being friends with someone who identifies as male
Fatherhood and friendship
rolemodels for friendship among and with male presenting people

This is rather confessional but I don’t think I can talk about these issues without being honest about myself. I hope that’s of some use.

May 4, 2023 0

2/2 The slow motion banking crisis of 2023

Silicon Valley Bank, a regional American bank with a focus on funding venture capitalists and tech start ups.

It took the cash it had to keep as its buffer and invested it in US Government Treasury securities. USTs as they’re known are considered the single goldest of the gold standard of global investments. Absolutely guaranteed to return your money to you when they mature because they’re backed by the US Government.

You would be forgiven for thinking ‘what happened then?’

To understand what went wrong and what’s still going wrong, I need to explain how these instruments work, at least in part.

USTs are tradeable, there’s always someone who wants to buy/sell them. That means they’re what we call liquid instruments. In other words they are considered very much like cash but just in a formalised format that can be shifted between different people (imagine a glorified £10 note being passed around a pub).

Now, different USTs pay the holder a different amount because, they are after all, debt issued by the US Government and you, as the holder, as the lender. As such they US Government pays you an interest rate. That interest rate can vary. Now, assume I have two USTs, one paying 1% and the other paying 5%. The latter is clearly more valuable to me as I earn more from owning it. So I will also pay more to obtain it. This means that the 1% UST is worth less.

On the day the UST was issued it was worth exactly what it said on the front. In other words I could by a £10 note for £10. Think of it like a rare comic or action figure. On the day it’s made I can buy it from the store for the list price but by the time I get it home the resale value has changed. The comic, if kept in good condition might be worth more than the list price. Or, if they print loads more, it might suddenly become worth less (same if I tear the front cover).

All financial investors know the instruments they invest in have values which can change. Most hedge against these changes so they are not exposed to violent changes in value. Why? Well, imagine if I invested in 100bn of these instruments, paying 100bn for them on day 1 only to discover a few weeks later than their value had changed and they were worth just 50bn…that’s a loss of 50bn and, worse still, it’s other people’s money I’ve lost, money which they want back.

All of a sudden I might not have enough money to pay what is owed and, as we all know, when that happens, we go bust.

Now there’s loads of ways of managing this and it’s absolutely a normal part of running an investment book, not least a bank.

Except SVB did none of these things. It behaved like it could never lose money. Except it did and now it doesn’t exist.

The last bit happened because people got wind of what was happening and, worried about SVB not being able to pay its bills, they asked for their money. And when they did that, other people saw them doing that and did the same because if they didn’t they might end up being the ones left owed money by the bank after all the money it did have had been given to others. In other words, there was a run on the bank as all the people with savings there asked for their cash back at the same time.

So much, so It’s A Wonderful Life.

Except I’ve mentioned the cause here and moved on. Let’s circle back.

Why did those USTs change in value so much?

Because the US Federal Reserve raised interest rates. As soon as they did, all new USTs issued by the US Government would be paying that new rate (roughly) meaning that any which were issued before which paid less, were suddenly worth MUCH less. Holders of that older debt were (and are) facing significant losses in the moment. Sure, if they keep them to maturity they get paid every penny and there isn’t a loss. But SVB couldn’t hold on until maturity because people wanted their money back now.

In other words you could say that through a combination of SVBs incompetence and the Red’s raising of interest rates, the US Government bankrupted its own bank. (Regulations are in place to stop this but they weren’t enforced with this bank (and many hundreds of others and guess what, when not policed properly the banks played to the rules they did have to follow not to what prudential risk management required).

There are currently 4200 regional banks in the US. A very large proportion of them are facing something similar.

But it gets worse for us all.

Central Banks around the world have been responding to inflation by raising rates. They have done this despite knowing it’s the wrong economic thing to do because politically they have not choice. They’ve been given one hammer and hence their problems all look like nails.

Those rates rising mean that government securities across the globe are now paying more interest.

2 years ago they were paying nothing. If i invested in an office block in central london it was probably paying me 4%, an amazon warehouse might be paying me 3%, a prime hotel in the west end of London or elite Paris…2%. All these assets are illiquid – that is they can’t just be exchanged between people and their value is contingent not on rock solid governments but on tenants and performance and even the age and location of the building.

Which would you rather own? That’s right – government debt. And that’s now paying 5% in the US and more than 4% in the UK. So why on earth would you own any other asset that relative to government debt is riskier, less liquid and much lumpier. Again, that’s right – you wouldn’t.

In order for those assets to attract your attention they’d need to pay, say 10%. Now if I have an asset paying me 2m a year and that yield is 2% of its value, that implies it’s worth 100m (sorry for the arithmetic here). Now, suddenly I have to pay people 10%. I haven’t got more money coming from my shop or office’s tenants. I still only have 2m a year. So if 2m is suddenly 10% of the asset’s value, not 2%….that implies the value is now worth just 20m. In other words it’s lost 80m of value.

You could dismiss this as paper value. You would be dead wrong. Because the bank who gave me a 60m loan to buy that office is suddenly looking at the value of my asset and panicking that they could face losses of 40m if I sell it – because if I only get 20m back and I owe them 60m – hopefully you see the problem here.

I’ve used real property as an example but this is true for ALL financial instruments.

I’ve been calling 2023 the year of valuation resets. I mean that this is the year that rising interest rates reset the value of all the assets in the economy. And those values are ALL going down. In some cases by a little but there is evidence that commercial property values have fallen by 30% both here and in the US. This is a HUGE problem for investors and their banks.

And for us. Because when a bank faces losses it stops lending. When it stops lending everything grinds to a halt. When companies can’t borrow they can’t expand, they can’t grow and, more often than not, they struggle to continue making a profit.

Inflation is making us all poorer but it’s worse than that. By raising interest rates, Central Banks have created the risk of a slow spiral into a crisis where banks cannot/will not lend.

This isn’t obstinacy by the banks but a desire to protect themselves from further losses. And the secondary issue here is that this drives fear through the markets as people start to look very carefully at banks who maybe haven’t performed well historically and who might be exposed more broadly than others to these assets changing in value so rapidly and by such large amounts. First SVB, then Credit Suisse, today Deutsche Bank. None of these banks are really connected in a financial plumbing sense – they are distinct entities. Yet they are connected in that they are poor performers in a market where Central Banks are deliberately engineering a banking crunch.

I’ve written at length about why raising rates is the worst tool to use when inflation is supply side. I won’t cover those arguments again here.

However, the question remains, where do we go from here.

I refer you back to the point that there are 4200 regional banks in the US. The market probably can’t sustain that. What if they reduce to just 1000? That’s a loss of 3200 banks. Imagining the impact of that on the economy is beyond anyone no matter how smart.

The UK banking system and Europe’s too to a large extent, does not face these laxities in regulation nor the fractured market landscape. We consolidated our banking system after 2008 where the number of building societies dropped from more than 100 to less than 20. Europe did largely the same (although France and Germany in particular are likely to experience more pressure for consolidation).

That means that we may well not see the same issues here in the UK (or in Europe) that are likely to unfold in the US. Except. What happens in the US market is absolutely going to infect us.

I’m going to finish with some questions and answers.

Do you need to move your money? No. The UK government’s deposit scheme and our overall banking regulation is pretty solid. I’m happy that there aren’t any UK banks at risk
Is it possible this is all a storm in a teacup? Yes. Of course. Yet Bear Stearns collapsed in March 2008 and it was 6 months before Lehman Brothers fell apart. So just because a few days goes by without a disaster don’t assume it’s all over…I currently believe we have much more road to run before we emerge from this.
What can I do? Nothing. Well, don’t take your investment advice from reddit.
What should I do? All this may well mean nothing to you because, fucking hell, energy prices and food prices and a lack of a wage increase mean the very idea of savings is nonsense. I get it. However. if you have cash? Find high quality places to put it. And perhaps think about looking at how you might support banks who have super strong ESG credentials. I say strongly that this is NOT investment advice! It’s just my personal moral opinion.
Will interest rates keep going up. Very unlikely.
Will interest rates come down. I’m afraid that’s equally unlikely. The era of ultra low interest rates is over (for now – who knows if this turns from a slow grind of a crisis into something worse).
Is all this the result of people gambling in the financial markets? No. it is perhaps the absolute opposite – financial institutions have done what was required to be prudent and, in a shock move, Central Banks using the only tool they have to tackle something that isn’t a nail, have created a situation in which everyone is facing incoming pain.

What is clear to me is that, smart as they are, the complexity of the financial system and its response to rapidly rising interest rates has been missed almost entirely by those responsible for raising those rates. Why? Because they were focused on what classical economics says the economy would do if interest rates rose and never, for a moment, thought about how bank balance sheets would respond. Was this incompetence? I would err on the side of it being an area that no one saw coming but for pity’s sake we need to update economics degrees as a matter of urgency from their ideological capture by people whose theories were discredited by reality 20 years ago (I’m looking at you Friedman and Hayek and all your inglorious acolytes).

In other words I finish as I started – regulators legislate based on the last crisis and 2008 was about badly performing banks and an economy glutted on easy credit. 2023 is about a cash rich economy discovering all the things they’ve invested in are suddenly worth much less than yesterday. We didn’t legislate for this because it seemed inconceivable to us that fighting inflation would precipitate a banking crisis after we spend 15 years shoring up those same banks.

March 24, 2023 0

1/2 How a bank works

There’s no real start to any story except to look back as far as you can go but no one has time for that. I could start talking about the post WWII economic settlement, the war in Vietnam and how that precipitated the collapse of the gold standard to pay for itself and then I might talk about everything which came after that – not that there’s cause and effect so much as these things made other stuff possible that wouldn’t have been otherwise. For instance, without Nixon there’s no oil shock in the 70s. Without that there’s probably no Thatcher and Reagan in the way they were. You could also talk about the rise of microprocessors and their impact on the financial markets and how, without them, modern finance doesn’t exist.

Truth is we have to start somewhere and this (long) post is, hopefully, going to explain a little of what’s going on, why I’m pretty pessimistic about the next few months (in a strictly personal capacity!) and what we can and can’t know about what’s to come.

There’s a truism in financial circles that regulators legislate for the last crisis and its from this cliché that we find the seeds of what is going to be a slow motion swirling car crash of a crisis.

I promised to keep this lay-person friendly so I won’t put references and I’ll try not to use high-fallutin language that is common in the circles in which I move.

So to start. What is a bank? There are lots of answers to this question but at its simplest, a bank is a place where we socialise money. Ok, so I’ve utterly failed already. What I mean by this is a bank is a place where lots of people come together, in trust, to put their money. They don’t just put their money there for shits and giggles (see Matt, swear words). We also want these collections of money to be used for our benefit.

What that means in practice is that a bank acts as a social hub where I can borrow against my future wealth today. I need to pay that money back but the risk I take is that I can take money today and turn it into more tomorrow so that when I repay the amount I have borrowed, I still have some left. When lots of us do this, the money going into a bank also flows out, from you to me and vice versa. This is what I mean by the socialisation of money. A bank is what we call an intermediary – it matches up those who have money to store with those who need sources of money to spend/invest.

So far, so simple.

However, when I put actual money into a bank I don’t want to leave it there forever. The actual amount of time people leave savings is, actually, far shorter than the length of time they want to borrow it. i.e. on the whole we want to wait as long as possible before repaying our debts but we want free access to the actual money we do have. This is entirely reasonable and rationale.

But it presents a bank with a problem. If the money your using as loans for other people might need to be returned to depositors before borrowers have repaid it you have something we call a maturity mismatch. Think of it like this. My sister gives me a tenner for a week. I give that tenner to my mate, Adrian, who says that he’ll use it to by a rare pokemon but it won’t be delivered to him for a month. But when it arrives he’ll sell it for £12, give me my £10 back and keep the £2 profit for himself.

On a one to one basis you can see this doesn’t work as my sister’s going to take back her money before I get repaid by my mate, Adrian. I end up out of pocket.

I also run the risk that Adrian doesn’t give me my money back…I have a risk of not being repaid.

I’m not going to get into how we price for the risk of not getting paid back nor into how I might persuade my sister to leave her money with me for longer by offering to give her a few pence each day if she does. Suffice to say there are lots of mechanisms in place to help make sure I get my money back from Adrian and to help encourage my sister to leave her money with me

These are all designed to close the maturity mismatch.

Now. Banks work because there are LOTS of people wanting to put their money somewhere. Some of them are you and me, others are companies. But none of us want our money back at the same time. We all have different periods over which we’ll leave our money, which means that, on average, the bank can lend it out without worrying that all the money it’s been given will be asked for on the same day.

I’m hoping all that makes sense so far. Please feel free to comment where it gets bewildering.

So. The next bit is that based on the fact that it’s really very rare for any group of people to all want their money back at the same time, a bank is permitted under nearly every law there is, to lend more money than it has been given. In fact, it’s weirder than this. Banks are permitted to lend money as long as they keen an amount available that would meet two possible risks.

The first is that they should have enough cash on hand to be able to absorb losses arising from people not repaying their loans. The second is they have to have enough to be able to pay depositors their cash back if they do want it. The amount they hold is sized to absorb both the above under stressed situations – when things have gone wrong and lots of losses are happening and more people than average want their money back.

You’ve got to remember that if I kept all the money you gave me witout lending it out anywhere, that’s not a bank, it’s a safe. You’ve also got to remember that if that sounds good, then you will also have to live without your credit card, mortgage, student loans, pension, insurance, healthcare, roads, computers, movies etc. etc. etc. This act of being a financial intermediary is critical for a modern way of life (whatever other criticisms you might have).

For the conspiracy fiends out there. No one designed it this way. What happened was there have been lots of attempts to make money socialised across the centuries and most of them have failed (for honest as well as nefarious reason). What people have done is learn from those failures and try to make the next attempt more robust. This is what we call emergent behaviour and although it can feel spooky it’s really just the fact that when lots of people come together communities and organisations emerge naturally from them being in close proximity to one another over time.

The current global regulations, put into place in the wake of the GFC are extremely complex but when boiled down to their simplest, suggest that banks must keep c.12% of their money in a form that can be readily returned to depositors should the need arise. (The banker in me is crying at just how actually wrong that is but it’s close enough for this post).

If I have a bank with 1 trillion dollars of cash, that means I have 120bn of cash in my buffer. I cannot just leave that cash there because what with inflation, a pound tomorrow is literally worth less than a pound today. So I need to put it work.

Silicon Valley Bank did just that and we’ll get to why it was a disaster in the next post.

March 24, 2023 0

On censorship

There’s a typical media bubble furore right now over the ‘censorship’ of Roald Dahl and other older writers who remain, although bafflingly to me, beloved of quite a few people who consider themselves morally right on. Therein comes the exercises where people try to contort themselves into defending something they know is problematic but where admitting that would put them in the position of, outrageously, having to take a look at what they love and questioning the harm it may have done.

So far so normal for my life as a minority among an ever blind to self majority.

Why then am I writing this? Because it’s both too easy to say such nonsense as ‘I read it and didn’t become a racist’ and to simply tell people who like Dahl and Fleming and any host of other writers whose attitudes have aged terribly (and this in itself is a problematic phrase we’ll come back to momentarily) that they’re the problem.

As it’s so often up for debate let me state here that trans people are people. Fully so. Indeed, allyship is fundamentally intersectional and if you come for them then you’ll better come for me too (hey, I know I’m also on the fascists’ list, but it’s worth reminding bullies they can’t pick you off one by one).

What do i think about this?

Firstly it’s not censorship. There is no government censor demanding the offending copies be destroyed and replaced with new bowdlerised versions. So please stop calling it that.

What this is, is revision, amendment, adaptation. I think whether you believe this to be wrong rests on two intersecting sets of attitudes the First is simply – are you prejudiced. If you are then you’re going to struggle accepting there’s anything wrong with Flemings’ happy projection of sexism, racism and ableism in his Bond books. You’re going to struggle to see how buying books from the estate of Dahl doesn’t implicitly condone his virulent anti-semitism. This doesn’t make you a racist or anti-semite or misogynist.

But it makes you a fucking terrible ally. If you are still in the camp that thinks that because it’s not affected you then it must be fine then you are not my ally. Because it’s sure as fuck affected me. The writing of Dahl (mean spirited as it is about people who don’t meet his particular moral norms), the terrible attitude towards anyone not a white british upper class male of Fleming, the out and out racism of Lovecraft. These harm people like me. They harm us twofold. First you keep giving your money to publishers who see you supporting these awful attitudes and so keep publishing them. The second round effects of these do untold harm.

Secondly they harm us because they continue to entrench, in a thousand tiny ways you are fucking blind to, attitudes and behaviours that essentially say white men are ok and everyone else is (slightly to grossly) inferior.

But that’s enough on why these books are problematic.

The question right now is what to do about it.

This brings me to the second set of motivations about amending and adapting literature. Whether you think it exists as a perfect artefact or whether you think culture is a living breathing thing. I’m in the latter camp but if you sit in the former, even if you don’t realise it, then you may well regard adapting ANY work of art as problematic, more so than the messages it contains.

I wonder if you’d rather nazi works of art or the art of the KKK or mussolini and Pinochet’s regime works should be put on display prominently rather than being quietly forgotten? Probably not (unless you’re some kind of edge lord who thinks reductio ad absurdum is a god tier debating technique rather than the province of 10 year olds caught pissing in the sink).

I understand the reasoning. if the work of art is a thing itself, a direct platonic objet d’art then interfering with it is sacrilege. Religious in its level of desecration (apologies of you’re an atheist who feels like this but perhaps you’d be better off taking a long look at how you value objects and what that says about the axioms of your ideological value system). I mean you’re on the wrong side of history, fighting Canute like against the encroaching sea which can easily wipe away your sand castles but at least your position is comprehensible.

For me, someone who continues to face racist abuse and who witnesses and experiences a thousand smaller expressions of unthinking prejudice any attempt to change the framework within which the discussion takes place is a positive one. My kids read and listened to a select few of Dahl’s stories. They hate James Bond and they (and their friends) are all too aware of Lovecraft and mock the racist old bastard whenever he comes up. This is fine by me.

Do I think these authors and others like them should be banned or actually censored (and gosh, because we’re talking about changing windows of acceptability among the MAJORITY here, that’s a lot of authors and artists)?

No. I do not.

I think we should be honest about the fact that in giving people like me a voice, in your recognising me as a proper human being who is worth every bit as much as you that we must alter what we think is acceptable to say, express, paint, sing and write about. I think we must look at our histories in which your parents were abusers of mine in a thousand ways even when they were kind because of the nature of the imperial and classist society they lived in and consider the legacies of that upon ourselves today.

I think that if we can change the landscape for the better even if only for a few that is worth doing because we are doing something right now that will echo through the years to come. But we do not forget the past. We do not exploit the past for gain. We do not pretend it didn’t happen but we do not hold it over one another either. If we truly want equity and equality then we must, especially the representatives of the majority, accept that our tastes should be open to change in order to lift others around us up.

Far too often in these debates those who have never been harmed because they’re in the majority scoff at those who have been harmed and, worse still, mock those allies who are trying to make our culture somewhere safer for those who are harmed by old attitudes and the power structures they still represent.

This is no way to treat those trying to do good. This is no way to make me feel safe around you. When I hear your comments I mark you as someone who is at best cloth eared and tone deaf but who is, at worst, willfully ignorant and therefore not someone who I can trust in any way at all.

If that causes you to think about what you say then I want you to know this is no condemnation – I hope you see this as me being vulnerable (and spikey as a result natch) about how your attitudes impinge upon my life and my experience of the spaces we share together.

So no to censorship. This isn’t censorship. It’s people in some small places trying to make things more inclusive and contemporary (just like those books were when they were published). They’re trying to update the hymns and when you object on the spurious reasons I’m seeing all over the place, you are the crusties sitting at the back of church demanding hymns are sung exactly as they were written three hundred years ago. Regardless of the fact they were contemporary back then, regardless of the fact they were often mixed up, rejigged and adapted to their situation then. You see the ossification of the object and assume that’s the pure form rather than realising that like any fossil, the stone version of the bones has seen not just the life stripped away but the meat, sinew and blood too. The fossil is nothing more than a fractured memory as far from the real thing as a painting of someone in love is from love itself.

The question I’d ask is – are you an ally? if you are then perhaps a little more nuance and a lot more empathy about the people whose lives are actually involved might go a long way to helping you understand why these small acts – so irritatingly silly to you – are actually wonderful signs of rebellion against prejudice and hatred.

Words matter or people wouldn’t be arguing over them.

February 20, 2023 0

Interest Rates and Inflation (this is a long one)

Everything here is my own view and does not reflect upon any institutions I may work for or be involved with. That’s not to say what I’m going to write is controversial (it largely isn’t among experts) but, you know, this is me.

It may also be that you have a view on this already and on that basis nothing I’m going to say here is written with a view to changing your mind should your view be different to mine. I am going to be snarky and if you find your view ridiculed? Sorry, I think these issues are important enough that those whose approaches would leave us all worse off need, at the very least, to be made fun of.

A couple of housekeeping points. First – prediction is really hard, especially when it’s about the future. (thanks Niels Bohr). I’m not going to talk about the future in this post. I’m simply going to talk about what some things are and what we know about them thanks to past events. Second, I’m going to try to keep jargon (such as monetarist, neo-liberal, keynesian, chicago school, exogenous, M0, M1 supply etc) out of the text – not because I can’t swing my educated dick around with the best of them but because this isn’t a policy document.It’s something I wanted to write to explain some stuff about inflation, rates and the consequences for you and me.

Third and final point of housekeeping – economics is not a science no matter how much maths is used, no matter how many formula. It is much harder than most science. It is also, as a discipline, much more arrogant. Although I’m trying to explain something here, I’m also giving you a health warning that although looking back we can try to describe what happened and then venture explanations as to why – the truth is there are no ‘great men of history’ driving what happens.

Right. That out of the way, let’s take a look at what I’m interested in talking about today.

The BoE describes Inflation as the word we use for rising prices. Which is annodyne without being incorrect.

The rate of inflation is therefore the rate at which prices are rising. Again, accurate without being insightful.

What that doesn’t do is explain WHY prices might be rising, what impact that has nor the fact that the measurement itself is…a thing worthy of examining.

So, first, what creates inflation?

Some people blame capitalism and suggest we could have a zero growth kind of world. I wish them luck. Why the snark?

Because inflation is a measure of what it takes to maintain the standard of living we have now. Think about that for a moment. Inflation is a measure of the cost of something at a given moment in time against another moment in time. I always struggle to help people see how inflation is a measure of cost over time. It’s not a measure of something today.

Think about it like this: I have built a road. To pay for the materials, expertise and labour I have to have money (and investment in stable systems in place over time to create expertise, tools and those same materials). I may have this money through two routes. I can save up until I have the funds OR I can borrow the money. Borrowing is essentially bringing money I might have in the future into today.

So I build my road. The money is spent. The road lasts forever.

Wait. Something isn’t right with that statement.

Yep. The road doesn’t last forever. It degrades. It crumbles and gets potholes through use. It needs maintaining to keep it in good nick. You could think about inflation as the amount you spend through time to keep that road in good condition. It’s not a perfect analogy but hopefully you get the point – which is inflation is a record of the cost of having something over time.

I think it’s a better description than saying inflation of 10% means a shirt that cost £10 last year will now cost £11 because it gives you a sense of why that additional cost has materialised.

So far so vague.

let’s delve into the weeds a bit. To do that we’ll need to leave the rather hand wavey/philosophical description above and assume that inflation’s about people wanting things and what they’re prepared to pay for them that drives prices – it’s obviously way more complicated than that. We’ll also ignore why basic measures of inflation entirely ignore the indirect impact of how society is structured and the economic and social policies in place for that society (and those it interacts with). For now though let’s go back to school for a moment and assume that what high schoolers and undergraduates are taught about inflation is actually true (pfff).

There’s basically two types of inflation. The first is what we call demand led inflation. This really means that you want something and you’re prepared to pay for it. If there’s not a lot of something and you still want it you might actually be prepared to pay more for it and the people selling it will therefore choose to charge you more because you’ll still buy it when they charge more. That is demand led inflation because your demand led to prices increasing.

Side Bar: this is not really what demand led inflation is – because that entirely ignores unequal demand, inequality and the elasticity of demand. ie. you may want something badly but can’t afford it, so you don’t buy it. I can afford it but the seller knows I can afford it and that I’ll still choose to pay for it if it’s twice the price. So they raise the price twofold and hey presto we have inflation. Except that the costs haven’t changed and now the seller is richer and there are lots of people(think about this globally) who can’t afford this thing that’s desirable. That might sound reasonable until you think of it being clean water or access to medicine. Inflation is too often thought about in connection to luxuries and not often enough with basic human essentials in mind. It’s important because sometimes the demand that we all have access to something is reasonable, compassionate and humane. Other times it’s not but the two things can both be true. END of Side Bar

There can be many reasons for this kind of inflation. You may be wealthy. You may have a critical need. You may simply want something for no other reason than you want it.

The other side of this coin is supply led inflation. Basically when the person/people/companies selling something jack up the price compared to the last time you bought it. Think Martin Schkreli who tried this with medicines and was, in the end, convicted although the actual gouging he engaged in wasn’t the illegal part (thanks laissez faire economics!).

The reasons for why supply led inflation may rise are also many but are rarely the same as those on the demand led side. They could be that the prices of raw materials have increased or the cost to heat their factory or the wages they must pay or the im(ex)port taxes levied by international treaties. They may be required to adjust their methods or invest in new machinery. Sometimes just the cost of keeping things running can lead to them needing to put cost up.

Side Bar: you may have heard of shrinkflation – this is a recent word for something that’s as old as the hills. When a company needs to put prices up it may not be able to because demand for that product would collapse. So it might keep prices the same but reduce what you receive for that. It may be a smaller chocolate bar or a flight with no free meal or a train that has no tables…these are all examples of the same thing. END of Side Bar

The perils of high inflation are unique to the human condition. high inflation, regardless of the cause, a the fact that prices are rising fast. Now, high inflation sounds like its a thing that happens in a moment but it’s not and this is REALLY important to grasp. Rising prices rise over time. That means that what costs £10 today may cost £12 next week but then £15 the week after. If you’re earning only £10 then both of those rises are damaging to your ability to just STAND STILL and maintain the quality of life you had yesterday.

You could just give everyone more money so they can afford everything but that too is definitely inflationary as suddenly people will spend this will definitely lead to SELLERS raising prices because they can and that will bring us right back to where we started but WITHOUT solving the problem of everyone spending more just to stand still.

It’s really important to realise that most inflation is transitory. By which I mean that there is a period in which the prices rise and then they stop rising. Think of it like this – when you accelerate from 20mph to 30mph there’s a period when you’re accelerating but when you reach 30mph you stop increasing your speed. Inflation is the acceleration and, just like driving faster, it stops when you reach that new level/speed.

Most of the time at least.

Knowing this doesn’t help if your wages don’t match the increased costs. Now, not being able to have the same quality of life as you did yesterday sounds bad and it is. For many people they absorb these costs and carry on but for many others they find they can’t eat or pay for heating or afford new clothes. For the least well off they discover they can’t afford to live in a house with walls and a roof. Inflation is exceptionally damaging in many circumstances because it always hits the poorest hardest, earliest.

Now, you’ll often find a moral dimension in inflation arguments and it runs like this. Talking heads moan about workers wanting more money arguing that if they do get more money they’ll then by able to buy more and therefore drive prices further up. No one ever criticises bosses for taking huge payrises or suggests that billionaires are responsible for asset bubbles (news flash, they’re a symptom of the disease not the cause, but they’re a cancerous symptom, one that spreads and does damage similar to but not identical with the problem from which they burst like nasty buboes). This one sided offence and moral castigation tells you people i) don’t understand inflation and ii) think workers should know their place and that place is to do work and not really be humans who might live for other reasons than work.

However there is some truth in the argument if you carefully excise the moralistic puss. It is this: if costs remain stable then demand led inflation can lead to price rises that increase inequality and damage economic stability. I come back to the fact that the ultra wealthy do this simply by existing as nodes for wealth accretion but hey, that’s just me.

In these circumstances, and these circumstances alone – that is where it is the great mass of people driving prices up via demand for more – then raising interest rates can have some impact. Not a huge amount, certainly not directly on people since the majority of homes in the UK are owned without a residential mortgage attached (the ONS estimates that only 28% of homes have a mortgage attached)) and so rising rates will have no DIRECT impact on the majority of people. If you factor those in with fixed rate mortgages the proportion remaining unaffected rises even higher. (and let’s not talk about the US where standard fixed rates are between 10-30 YEARS, not 1-3). For these people rates could rise to 10000% and they’d still not be directly impacted.

For others who borrow, the rate at which they borrow may only reset once every few years. So raise it today and rising rates won’t impact them until a few years from now.

Yet in fiction and in many economics textbooks and certainly in most news media, this is the only kind of inflation anyone ever talks about (because it’s easy to be moralistic about individual choices and being judgy sells copy).

What we’ve experienced in the last twelve months certainly has some elements of this – there was a huge amount of pent-up demand post lock down. Yet inflation was exceptionally low during lockdown and so this, really, can be balanced out by its later contribution to our overall inflation numbers (the rate at which prices rose reflected, in some part, the sudden demand in the market after months of people being stuck at home. This isn’t correct across many sectors but it’s close enough to being right that we’ll let it pass unremarked).

What isn’t well understood outside of banks and hedge funds, insurers and other financial professionals is this: the inflation that kicked UK CPI to 11.1% for it’s October reading is largely led by supply led factors. That is, factors that I as a consumer have no influence over. None at all. My buying habits have largely been to stay where I was this time last year. What I’ve discovered is that to do so I have to spend 11.1% more (on average – for those with less the inflation rate could be as high as 20% because the items they want have seen more extreme localised inflation). This isn’t me wanting more, it’s me struggling to stay still. Again, when I ask for a pay rise it’s not to buy more but to buy the same as what I was buying last year! That is hardly demand led as traditionally defined.

Why is this? A bunch of complex reasons all coming together at the same time.

The first is the impact of lock downs on a global scale. Factories shut, ships didn’t sale, ports were closed, mines stopped mining and people stopped planning for normal levels of demand. This meant that when the world started to ignore covid and carry on as if it wasn’t there (thank goodness for vaccines) the demand for life to return to how it was in 2019 simply couldn’t be met.

There were no factories producing widgets, no ships to take them and no ports to receive them. These shortages resulted in companies struggling to fulfil demand and prices rising because just to ratchet up production and mend supply lines and get shit around the world demanded new, unforeseen investment. It turns out that if you turn big things off it’s not simple (or free) to switch them on again.

Then the fact that some places responded to proposed shortages by agreeing to pay more than others. This demand inflation wasn’t created by you but by companies who wanted to sell to you and knew they could make you pay more just to stand still. So shortages turned into prices rises.

No one was earning more at this stage, we were just paying more.

Then came the war in Ukraine which obliterated the world’s grain supply as well as making its energy supply something it hadn’t been for 30 years – a geopolitical existential crisis.

Again, the desire to be warm is not a demand led problem. it’s a supply led problem. We ‘demand’ being warm but it’s not us pushing prices up wanting to be WARMER. We want to be as warm as we ever were not baking like never before…The political risk involved in this market which is a fundamental for EVERYTHING else meant that as unit costs for generating energy increased everything else also became more expensive. That is a cascade which means disproportionate non-linear rises in manufactured goods downstream. That process still hasn’t finished playing through the global system and there’s nothing to say it won’t continue for at least another 18 months (sorry, just the messenger here).

Now, I hear lots of ill informed people saying we need to raise rates to suppress demand. The desire to be warm when it’s -4C outside isn’t going to be suppressed by having the price of energy go up. You will impoverish people or, worse still, kill them from lack of heating. But you won’t make their desire to be warm go away. Fundamentals like this are not luxuries and the callous and wilful ignorance that refuses to see the nuance here infuriates me. That’s not the worst of it.

In a supply led inflationary scenario raising rates doesn’t work to bring prices down. Prices stop rising by themselves. Now, for those at the back – something really fucking important. When inflation falls from 11.1% to, let’s say 5%, that doesn’t mean prices are falling. It means prices are STILL RISING but only at a slower rate. In our car example, it means it’s going to take me longer to reach 30mph but I’m still going to reach 30mph.

It also means that price rises will naturally slow because the shocks play through the system and are gone. i.e. rising rates have no impact on those price rises and certainly had no influence on them slowing down. Prices have risen, the change is done, inflation has fallen but that doesn’t mean prices have fallen, on that the pressures on the supply side have stopped pushing prices rises through the system. We’ve reached 30mph which is, it turns out, too fast for many people to keep up with.

That is not a comfort to someone who’s already been priced out of being warm because their wages haven’t kept pace with rising costs.

Secondly, sure, Mr Governor, raise rates in the UK to 10%. I’m sure Putin and Zelensky will take notice in Russia and Ukraine…or not. I’m sure energy generators selling to China or the US will take notice and reduce their prices…or not. I’m sure people shipping from India will reduce their prices…or not. I’m sure the fact the EU can afford to pay more than they did before for supplies which once came to us will mean our prices fall…or not.

Localised raising of interest rates CANNOT control for global events as they interact with a thoroughly interconnected economic system.

What raising rates WILL do is lead us into recession as companies and individual exposed to interest rates find they can no longer meet interest payments, find that their customers can’t afford even what they bought last year. As their revenues decline those same companies will close and put people out of work and so on. It is, as the chief economist of a certain bank I know well said, meaningless and an act of self harm to raise rates when the drivers of inflation are i) not impacted by those rates and ii) those who are impacted by those rates will only be further impoverished.

Why? Well on one side prices are rising and will continue to do so. On the other hand my ability to even pay what I paid last year is now diminished because I’m at risk of losing my job and because my interest payments have increased. This triple whammy of rising prices, falling incomes and increasing interest rates is an economic disaster and why we’re likely to see rates in the UK peak around 4.25% – which is still historically low.

Sure it will reduce demand but it won’t reduce prices because those prices were rising independently of consumers.

Smart move there Mr Armchair Economist/Political Hack/Moralistic Moron.

Do I have better answers? There are some REALLY smart thinkers out there who have suggested alternate approaches for this specific kind of economic challenge but that’s for another post, another time.

December 9, 2022 0

The coming crisis

This post contains my own personal opinion (I work in finance and this is neither official advice nor representative of what my employer thinks – caveats done with, let’s talk turkey). There’s been a lot of words spilled in the last few months over inflation and [interest] rates and energy prices.

I’ve become convinced that we’re about to see a change in the shape and nature of British society that we haven’t seen in 50 years. I won’t rehearse the arguments here about how much energy prices are going to rise or what inflation is doing to our paychecks.

I also don’t want to make this a doomsday post. What I want to do here is spell some things out clearly and then offer some help (mostly by signposting you to others who are much better at this than me). If you want to skip my longer discussion about what is going on, just go to the end where I’ll make some recommendations you might already know, but hopefully will provide some tools for managing budgets and thinking about insulating yourself against rising prices.

Inflation hasn’t hit us yet. Nor have rises in interest rates. We’re still only really just seeing the impact on housing of changes wrought first by Margaret Thatcher and then exacerbated by the Financial Crash of 2007-8 (It hit the US earlier than the UK).

Which is why I’m worried. An inflation shock like this – specifically because it’s driven by factors coming from outside the UK cannot be controlled – it can only be prepared for and survived.

There’s been lots of discussion over interest rate rises. So I’m going to do write a short 101 on why interest rates are rising (and will continue to rise, perhaps has high as 4%). Classical economics suggests that inflation is driven by people wanting to buy more things, by growth being such that the sellers can increase prices because people can pay more. In that scenario you raise interest rates to make people poorer. Simple as that. Poorer people buy less. If they buy less sellers can’t keep raising prices and hence inflation stops.

This is fine. It is also literally economics for toddlers.

Actual inflation comes in many varieties and the kind we have here isn’t the one I describe above. It’s what we call exogenous supply side inflation. Those fancy words mean the following: exogenous – coming from outside. Supply side – meaning that prices are rising not because people want to buy more stuff but because the goods themselves literally cost more to make and provide. So, if we put that together we see that this inflation shock is best seen as prices for the things themselves rising because of outside factors which are largely beyond our (and our government’s) control.

For instance, there has been a food crisis globally because of supply chains which, when Russia invaded Ukraine became a catastrophe. Food may be more expensive here but it can still be bought. In places like Egypt, there is literally no grain regardless of how much people are prepared to pay. This is a global problem and the food is being shipped to places who can pay more – like the UK. This means that prices go up because a shortage of supply means EVERYONE EVERYWHERE has to pay more just to get what they used to get. No one is trying to get more here, we’re all trying to get what we had before and discovering there isn’t enough to go around.

Into this scenario we have a central bank with a strange mandate and only one tool to achieve it. They have been mandated to keep inflation at 2% +/- 1%. Their only real tool is interest rates. This may sound ludicrous and it is. However, there are good [limited access link] reasons that this mandate and this tool sit with the (currently) independent Bank of England.

I’m not interested in rehearsing those arguments or those as to how we got here (hint: decades of exporting inflation). We are here, now. We discussed above why people often think raising interest rates cures inflation. As you’ve probably guessed, in this case it can’t work. Indeed, raising interest rates has literally no intersection with exogenous supply side inflation because no one who is involved in the rising prices is impacted by those rising interest rates. Even worse, if interest rates are rising where those goods are made/created then they are only going to make our inflation experience worse as those increased costs will be passed onto us.

Now, you could argue that this will necessarily make us poorer and so make us buy less.

Well. Yes. We’re being hit by rising inflation AND rising rates. So not only are goods becoming more expensive, but our own lives are becoming more expensive and hence we can buy less.

Except.

Except this doesn’t mean we buy less because for most people, in a normal environment, they aren’t running a profligate personal spending lifestyle. We buy what we need, we save and we plan for the future if we can/have the bandwidth.

The situation we’re in now means we find ourselves not able to even afford what we could buy yesterday. It’s not that we can’t afford these extras, it’s that we can’t afford to stand still. This is bad for us all – both individually and also as a society because this kind of stress has no real outlet or safety valve. Not least because the ‘help’ we’re getting from the system is to make our lives even harder.

As the pandemic showed – we’re prepared to put up with a lot as a society if we’re in it together and if we feel there are effective measure in place for us all to make it through. Raising interest rates at this point is literally the opposite of that.

So we’re falling backwards as a base case. Ordinary people hit on all sides.

And still interest rates are going to keep rising because when all you have is a hammer your problems tend to look a lot like nails. I have every confidence that the BoE understands everything I’ve written above. I also have every confidence that the current executive of the British government doesn’t.

This means that not raising interest rates is impossible for the establishment.

A couple of reasons why

Politically, the reasoning is the simple (idiotic) version that we’ve just trashed. But the reasoning holds and so there is immense pressure to rein in inflation. Not least because people are (absolutely rightly) very frightened for societies where inflation runs out of control. There is a high tolerance towards suffering if it holds back the kind of political turmoil we saw in the 1930s.
The bank wants to bring inflation down and believes that by making people poorer it can achieve this end.

Newflash – inflation will fall. Like the sun will come out after a storm. Neither the fall in inflation that will hit next year nor the reappearance of the sun after rain have anything to do with ANY actions taken by people. It may look like raising interest rates works when we look back, but let’s be clear – they will have had negligible impact. As an aside – in 2008 the BoE had a webpage where you could model the impact of changes to the base rate. Here’s a fun fact. It is generally assumed that a change to interest rates takes at least 18months to work its way through the system. Ie, if rates rise today it won’t be until 2024 that you see the real impact. It is the same with inflation The scary headline is today, but trust me, you won’t feel the worst of the impact for another 2 years. Yes. 2 years.

This is why I’m worried and why I’m writing this post now. The worst is very much still to come. It is unlikely that even a competent government who cares about the poor can do anything to help with this crisis. It can, however, make things much worse.

Opinions are divided on how to manage a high inflation environment that leads to recession because it’s been rare and so varied each time. Economists like to think they know the rarefied truth. They do not. (queue gnashing of teeth by amateur economists from across the spectrum with their own takes – they’re all still wrong)

However, one might think that investment in future industries like renewables would make sense. yes it would. But rising interest rates mean that the government can’t afford to be splashy with our cash even if they want to be because they too are paying more to borrow.

You could say that we hold off on raising rates. Except we can’t because central banks across the world are doing exactly the same as the BoE. There’s a complex relationship between exchange rates, currencies and what we call the risk free rates (basically the government cost of borrowing) of each of those currencies . If we leave our interest rate low while others raise theirs then guess what…yep, our currency depreciates relative to others and we get…inflation!!!

So we’re left with mitigation. Both at a societal level but also at a personal level.

So here’s my thoughts on that because this is the most important thing. None of the below is easy and none of it is necessarily going to fix anything but it may well help and I hope it doesn’t come to it but I know I’ve just refreshed by monthly budget and the changes in energy costs really frightened me.

Create a monthly budget. Be really honest and look at what you’re spending your money on and figure out how much buffer you’ve got. This is just general good practice but right now it might be the difference between entering into debt and not. There are lots of good websites that offer FREE budgeting software if the idea of doing it yourself is too hard. Even the government has one.
Where it’s a case of disposable income being mashed then look at turning down your boiler or radiators by a couple of degrees, about being fanatical about lights and turning off monitors and tvs and pcs at night.
Where you can’t afford to live the lifestyle you have now (and I’m sorry if this is a euphemism for not being able to afford heating and lighting and food). Start talking to service suppliers, think about what can be binned (like TV subscriptions and gyms and, and, and.). Where that’s not enough start thinking more drastically about talking to landlords, electricity/gas suppliers about payment plans.
Follow people like Martin Lewis and Jack Munroe on twitter and at their actual sites. Money Saving Expert was once a gimmick. Right now it’s essential reading.
Think about how, for food and other items, you can club together with others to buy in bulk. For many people buying in bulk alone is out of the question, but we can do it as a team.
Savings often go out of the window at times like this but please, save. Save to pay for bills, save for emergencies, because as sure as we don’t they’re going to come along and kick us up the arse anyway.

I am ALWAYS happy to help think through what you can do and I hope the above has been even a little useful. As a I started – there are many who are better at this than me – but right now I’m so nervous about what’s to come I wanted to say something no matter if it only helps one person.

August 17, 2022 3

There are two wolves

I am tired. I am so tired. The last few years have been a huge struggle for so many people and, frankly, I’ve had it more than ok. Yet somehow I’m still weary in my bones. I have little bandwidth and I find that I am easily overwhelmed in a way I wasn’t even very recently. Seeing people care for one another is liable to make me cry.

There’s a lot that’s brought this on – not simply lock down or this or that but jobs that have been extremely stressful for a long time finally cracking some kind of barrier within me, an innumerable number of friends dying (and yes, I’m getting older but a majority of these have been sudden deaths for a variety of reasons) and, honestly, my parents and those of my partner aging and my own realisation that there’s a finite amount we are ever going to do or see. Add to this a political situation that impinges on me and mine directly in uncomfortable and, already, distressing and oppressive ways and it’s been a recipe for challenging times.

Yeah, some of that is kind of verging on mid-life crisis, or at least could be cast that way. Charitably I’m going to say it’s not that, at least I’ve not been out to start playing golf, have an affair or buy a shiny red sports car.

I’ve always been an angry man. I was an angry young man and now I’m a (slightly more mellow) angry older man. I maintain that a certain amount of anger is extremely healthy. I don’t see moderates changing the world.

But reflecting on this over the last few months and especially this week I think I’ve remembered something I’d forgotten and in forgetting that idea I’ve grown sick in my soul.

There are two wolves inside me. One fights against and one fights for.

The one who fights against is loud and angry and bold and always ready for a fight. This wolf has enemies to focus on and beat. The enemies can change but they are always there and always need monitoring and fighting and hating upon.

This wolf grows when I fight against racism, against transphobia, against homophobia, against injustice. And it is ever hungry because there is always someone else to fight.

This wolf eats me alive and leaves me with no bandwidth and no time and no hope because my enemies are never, ever, beaten for where one is defeated another replaces them.

I have been feeding this wolf.

The other wolf fights for. It grows when I fight for equality and justice and freedom of choice and social responsibility and community goals. It grows when I state what I believe and refuse to be moved, when I lift others up and seek their good and their benefit. Strangely, when I fight for others, this wolf is fat and satisfied.

I have not been feeding this wolf enough.

It may seem that these two wolves want the same thing – but they don’t. The one wants an enemy to fight, it just so happens I have given it wicked enemies to focus upon. The other wants others to flourish and from that naturally follows equality and community and justice. You may argue they are two sides of the same coin but I would reply only because I care about the things I care about.

So this week I have decided to stop feeding my fighting against wolf and to start feeding my fighting for wolf. It is an attitude and view of the world I have long held and I am not sure when I slipped across the line to fighting against. Perhaps George Floyd’s death but I think I’d been sliding that way for some time. I think the way I use social media makes it easier to hate than it does to love, to find things to be against then things to be for and I was not vigilant about this kind of impact upon my person.

It is tempting to fight against because then the focus is outside myself and on those I can legitimately dehumanise and hate. It is easy because it requires no self examination and no situations in which I need to make different choices to those I might naturally incline towards.

But I think the righteous (if that makes sense in this context) choice is to fight for. At least for me. Not simply because often making the world a better place starts inside me and the choices I make when no one is looking but also because the outward looking nature of fighting for is one that seeks the flourishing of others. That’s something I can get behind even if it means difficult home truths about my own person.

July 24, 2022 2

Stewart Hotston

Hope, Anger and Writing

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