The Economy: What You've Missed
Welcome back to Garys Economics.
Today we are going to bring you up
to speed with everything
that has happened on the economy.
So I've been away for six months.
I want to do a video
to basically
bring you up
to date with everything
that's been happening
in that time on the economy.
The first thing
to say
is that
really, in many ways,
nothing has changed.
Things have continued
to progress
basically in the way
that I expected that it would,
the way that I've been
saying that they will.
And this
is because, in my opinion,
the economy continues
to be dominated
by the enormous amount of money
that was transferred
from government to very
rich individuals during COVID.
Those numbers have
increased slightly,
so I used to speak
a lot about £750 billion
that total
government deficit since COVID
now is £800 billion in the UK.
So that's £16,000
for every adult in the country.
That's the total amount of money
to the rich from the government.
In the US, the number is
$10 trillion,
eyewatering
$10 trillion, which is $80,000
for every US taxpayer.
So enormous amounts of cash
have gone from the government
to the rich.
In my opinion,
those continue to drive
the economy and things
are basically progressing
as I said they would.
And we're going to talk about now
what will happen from now.
So let's go through
the main points one at time.
Number one is inflation.
Inflation is obviously
the big thing,
which has been
hurting people's living
standards in the last few years.
We have seen inflation fall
significantly in basically
every country
in the world in the last year
or so from highs of
in the UK, 10% down
to now, about
4% in the UK
and other countries already
significantly lower.
Now this is
what I predicted.
It's basically
what all economists predicted.
We did a video
maybe about eight or nine months ago
when Rishi Sunak, the Prime Minister,
basically
said he would cut inflation
and at that point
in time
it was already
very obvious that pretty much
everyone that inflation
was going to fall.
So this is not a surprise to anyone.
Now, for me,
this is pretty much in line
with what you would expect
if you
see a one off massive cash gift
from governments to the richest.
The rich accumulate a ton of money.
They spend that money
that pushes prices up.
But because it was a one off
cash gift,
we see a one off
increase in the price level
and then those prices
start to subside.
Some people
think inflation
will come all the way down to 2%,
which is the target.
Some people think it might struggle
And stick around these 4%,
3% levels.
Personally,
I think we probably will see
inflation fall relatively quickly
and that brings us to number two,
which is interest rates.
Now the Central Bank,
Bank of England
or the Fed,
if you’re in the US,
move interest rates
to try and manage inflation.
So since inflation is falling,
the expectations for interest
rates have also fallen.
Now, if you go back
and look at my predictions earlier
in the year
for interest rates and house prices,
which you'll get on to next,
I said interest rates
will keep rising
and then as inflation
falls, will probably start
to see interest rates flatline.
At this point,
markets are basically
expecting that to happen.
So the Bank of England base
rate is up to 5.25%. Now,
they didn't change it
at the last meeting.
Markets now expect that
that will basically be the top.
It will stay at
5.25%, as inflation
falls, interest rates
will start to fall again.
There's a lot of argument
about how far they will fall.
Markets think that they'll
probably come down
to eventually about 4%.
That might take a couple of years.
Personally, I think that
inflation will fall further
and interest rates will end up
coming down lower than that.
But that would depend
based on government policy,
which will get on
to after we’ve
spoken about the economics.
The next thing is house prices.
Now I was very aggressive
in predicting house price rises
from the very beginning of COVID
and we did see
very aggressive house price rises
at the beginning of COVID.
Since then, interest rates
have risen enormously
from 0% up to 5.25%.
And I think a lot of people
have been surprised
that these aggressive
interest rate increases
have not led to aggressive
house price decreases.
For me, I think this is
quite understandable
when you understand
that an enormous
amount of cash has been
accumulated by the rich.
Now, when interest rates
go up a lot, as they have done.
Many of you will have seen
mortgage rates go up.
It becomes very difficult for,
sort of, middle class people,
especially poorer
people, to buy houses
because they rely on mortgages
and those interest
rates have gone up.
But in the same
time,
the rich have accumulated
an enormous amount of money,
which means that
they are able to buy houses
basically without using a mortgage,
using a very small mortgage.
So I think what we've seen
is two things, basically.
As interest rates have gone up,
rich people have been using their
cash savings,
giving it to their kids,
giving it to their grandkids
to buy houses without mortgages,
which is why house
prices have not fallen
despite these big
increases in interest rates.
And the second thing is that
rich people are able
now to get high interest rates
on their savings accounts.
So they're sort of
sitting on the cash they've got
getting high interest
and using it to buy houses.
This has meant that
we haven't seen what
a lot of people have predicted,
which is house price falls.
Now, I think
house prices is interesting for me
because I think
probably what we will see
next is interest
rates will start to fall
as inflation starts to fall.
I think once those interest rates
start to fall,
rich people will stop
sitting on these big
piles of cash in the bank
and they will start
to lend the money out
at lower rates for mortgages.
They will start to buy more houses.
And I'm strongly expecting
aggressive house price rises
in the next couple of years
as the interest rates fall down.
So I think this is going to lead to
a while before that.
I want to talk about
the very last thing we've got,
which is living standards.
So inflation
has fallen significantly.
I think people are
starting to realise now
what I was speaking about earlier
on in the year.
When inflation falls,
that doesn't mean prices fall.
So prices
have continued to rise
throughout the year.
Prices have consistently risen
more than wages, which means
even as inflation has fallen,
living standards
have continued to decrease.
The way I see it really is during
the three years of COVID,
we paused the
economy and rapidly
increased inequality.
If you pause the economy
and rapidly increase inequality
when you unpause
the economy is inevitable,
you will see a significant
fall in living standards.
I think that is basically
what we're seeing now.
The question is
what happens from here?
Because I think
the way that the economy is being
presented in the media at the
moment is largely that we are
in a recession.
And I think that
kind of gives the implication
that there is a temporary period
of decreasing
living standards
and then we will have a recovery.
I think if you want to understand
the long term picture,
it's important
to understand basically
the sort of second round effects
of this large amount of money
that has gone to the rich.
So up till now,
the rich, because they'd been
getting higher levels of interest,
have been relatively happy
to just sit on that money
and accumulate the interest.
Now, as inflation starts to fall
and interest rates start to fall,
they will probably look to invest
that money more aggressively,
which means they will start to
essentially
buy houses from the middle class.
So what that means is
we will see house prices go up.
We will see home ownership rates
from young people continue to fall.
What we will also see is
as the rich people
look to use the money
they've accumulated
and what we already are seeing,
significant increases in
rents,
the prices of luxury
goods, the price of holidays.
And that is, again, something
you would expect
when you
see a massive accumulation
of cash from the rich.
That basically means
rents will go up,
house prices will go up,
and the ability of
owning homes will become more
out of reach of ordinary families.
What that means for young people
from ordinary
and poorer families is
rent is much more
expensive when you're young
and you
then have to take
out a much bigger
mortgage to buy a house,
so you have to pay
much more in interest.
This increases the flow of rent
from the poor
to the rich
and increases
the flow of interest
from the poor to the rich.
We also have a massively increased
government debt,
which means that the government
is now paying debt,
paying interest to the rich.
You are paying
interest to the rich much
more on your taxes.
So all of
these second round
effects are essentially bad.
When you give cash to the rich,
the rich use that cash
to buy the assets
from the middle class,
to buy the debt of
the middle class, to buy
the government
increased levels of debt, decreased
levels of home ownership means
increased cash flows
from the
middle class to the rich,
and this will continue to
rebound through.
So what that means is
we will continue
to see living standards fall
in the coming year,
the coming two years.
I want to talk a little bit about
how this will
probably play out
politically, because
we obviously have an election
coming up next year in this country.
There's also an election
in the states.
I think
the most important thing
you need to understand
if you want
to understand
the future of the economy,
is that inequality
has greatly increased.
So it is inevitable
that living
standards have to fall further.
I think that will probably dominate
the political environment
for some time to come.
I don't think any mainstream
political parties
at the moment are serious
about reducing inequality,
which means that
inequality will
inevitably continue to increase.
So I think if you want to understand
politics,
the economic framework you
need behind
that is to accept that
from this point,
further significant falls
in living standards are
basically certain,
which means you...
what you see
is continued
dissatisfaction in whichever
political party is in power,
be that Conservatives
or Labour
or Democrats or Republicans.
So I think,
you know,
and I'm
not a professional
political forecaster,
but I'm very confident
my economic forecast,
what you will probably see
is increased demand
for ordinary people,
for some sort
of political alternative.
So it's probably
important
that we understand
what are the likely
political alternatives.
So I'm making this video
very shortly
after the Dutch
election in which for the first time
ever, the Dutch populist
far right party
essentially won the election.
Got the highest number of
seats and votes. And I think
at the
moment we are in a
situation
where living standards
will definitely fall.
They already are falling, clearly,
and people
will start to demand
a political alternative.
And what that means is,
it becomes very important
what the most feasible seeming
political alternative is.
And when I
look around
at voting trends in Europe
and in the
US in trends
of political parties,
it seems to be pretty clear that
at the moment, the most popular
sounding alternative
voice is increased
xenophobia, anti-immigration
and possibly increased racism.
And I think that in the absence of
the creation of a positive
alternative narrative,
it's almost certain that politics
will move this way.
And that is
a direct result of the fact that
it is basically certain
the economy will keep getting worse.
I think
people are aware when
the economy they're in is failing,
especially as that stretches on 10,
20, 30 years.
I think
when you know
that the boat you're on
is sinking,
you know,
you're going to basically jump
on the first lifeboat
that you see.
So I think
what we will see from this point
further decreases
in living standards,
which could become quite fast and
further
demand from ordinary people
for an alternative in politics.
And unless we can create
a positive alternative
which says
let's distribute wealth better,
let's increased living standards,
we're probably likely to
move towards these sort of
far right,
anti-immigration, xenophobic
sentiments over time.
Of course,
those political parties,
they will also fail
to improve the economy
because they will not deal
with the fundamental problem
of inequality,
which means that
unless we
create a positive alternative,
it will probably
simply shift further
and further
to the right and in the search
for something that works. So
that's a relatively
depressing message to be delivering
at the end of the year.
But I think
it also makes it
clear the importance of
what we're doing, which is,
if we make it clear to people
what's happening,
which is that
living standards will
continue to fall,
people will know
that we need an alternative
and we need to make it clear
the fundamental reason for the fall
in living standards,
which is the increase
in inequality.
If we decrease the inequality,
we can improve the living standards.
If we don't
decrease the inequality,
living standards
will continue to decrease
and politics will continue
to move in more extreme directions.
But the most
optimistic thing I can say
is the
massive increase
in inequality mean
that we have massive opportunity
to enormously
increase living standards
If we simply reverse
the increase in
inequality that we see.
So to conclude,
the economy continues
to be driven by inequality.
All the main
economic features inflation, interest
rates continue to be driven by that.
Inequality is increasing
very quickly.
If we don't decrease that,
living standards will fall.
If we take action,
we can make things better.
So support the channel.
We’re making lots
more videos in the New Year.
Thank you for your support.
Good luck.