The Daily Parker

Politics, Weather, Photography, and the Dog

Sterling drops to lowest price ever

The pound fell to $1.033 in early trading this morning before rebounding to the still-ahistorical $1.08 by mid-day:

Chancellor of the Exchequer Rishi Sunak hasn't had the job for three weeks and he's already tanked British currency markets. The Guardian's economics editor Larry Elliott calls the mini-budget that started this catastrophe a "schoolboy error:"

Part of the story of the pound’s weakness is a function of dollar strength but that does not explain why sterling has fallen so rapidly since the end of last week. There are three UK-related factors behind the fall.

First, once a currency hits the skids it is hard to stop it. Momentum trading took over in the aftermath of Kwasi Kwarteng’s mini-budget and it has proved hard to halt.

Second, Kwarteng committed a schoolboy error by pledging further tax cuts in a full budget planned for later this year. If the markets are worried about the state of the government’s finances and the increase in borrowing needed to fund your plans, it is not the wisest course of action to add to those concerns. Kwarteng’s inexperience has been exposed.

Third, the financial markets don’t really know how the Bank of England will respond to the events of the past three days. Threadneedle Street raised interest rates by half a point last Thursday but there has been speculation of an emergency meeting of the Bank’s monetary policy committee as early as Monday.

The Economist expands:

Five-year British yields have risen from 1.5% at the beginning of August to above 4.5% now: an increase of about one percentage point in just two days.

That combination of rising yields and a falling currency has prompted discussions of a broader crisis of confidence in Britain’s economy and its assets. The government’s tax cuts will mean a growing budget deficit and higher public-debt levels in the future. Britain’s current-account deficit reached 8.3% of gdp in the first three months of the year, the deepest in modern history, driven by surging energy prices. A gaping current-account deficit is something that often worries those who invest in developing economies.

But in other ways Britain is an unusual candidate for a currency crisis. Its exchange rate is flexible, meaning that there is no link to another currency, as was the case when Britain was forced out of the European Exchange Rate Mechanism in 1992. Its financial markets are deep and sophisticated. It has minimal debt denominated in foreign currencies, and its central bank is independent from the government.

The most simple explanation for the sell-off, then, is that investors do not believe that the government’s tax cuts will lead to the real economic growth Mr Kwarteng wants. Instead, they foresee higher inflation that the Bank of England will be unwilling to fully offset with interest-rate increases. Currency analysts at the Bank of America suggest that a combination of Britain’s changing fiscal stance and the long-running effects of its decision to leave the European Union have led to a profound rethink of the pound by investors. That leaves the currency more vulnerable in the years ahead.

I was joking with friends that I should hop over there to finally get a pint and a bap for under $10, until one of them pointed out that it would be a $1210 pint and bap given airfares and hotel costs. Ah, well. It doesn't look like the pound will recover before the end of the year, so maybe Christmas in London again? Any bets on whether PM Liz Truss will have to call an election before then?

The value of cities

CNBC released a 35-minute documentary earlier this month that fairly discusses the value of cities relative to suburbs and exurbs:

A lot of this is old hat to people who follow Strong Towns or other urbanist sources. It's a good backgrounder for people though.

In related news, California just passed legislation mandating an end to local parking requirements within walking distance of transit stations. It's a start.

We heard a loud crash in the Chancellor's office

UK Chancellor of the Exchequer (equivalent to the US Treasury Secretary) Kwasi Kwarteng (Cons.) announced significant tax cuts along with £72 billion in new spending to forestall higher energy bills this winter. Unfortunately, this massive stimulus comes during some of the highest inflation the UK has seen in a generation, estimated to be nearly 10% annualized as of this week.

Consequence? This, as of just a few minutes ago:

Sterling hasn't gone below $1.10 since 1985, and it probably won't again during my lifetime.

The Economist has no confidence in the scheme:

[Prime Minister Liz] Truss’s attempt to emulate the Gipper’s success is doomed. To see why, consider the currency markets. Reaganomics was accompanied by a strengthening dollar. So were Donald Trump’s tax cuts in 2018, which also happened alongside monetary tightening.

In Britain, though, the pound has slumped by 16% against the dollar in 2022.

As a result, the BOE will get no help from currency markets as it offsets Ms Truss’s fiscal stimulus with tighter monetary policy. Instead more expensive imports are boosting inflation. That is a big headache for an economy that depends on trade as much as Britain’s does.

Ms Truss’s cheerleaders seem to have read only the first chapter of the history of Reaganomics. The programme’s early record was mixed. The tax cuts did not stop a deep recession, yet by March 1984 annual inflation had risen back to 4.8% and America’s ten-year bond yield was over 12%, reflecting fears of another upward spiral in prices. Inflation was anchored only after Congress had raised taxes. By 1987 America’s budget, excluding interest payments, was nearly balanced. By 1993 Congress had raised taxes by almost as much as it had cut them in 1981. If Britain’s government does not correct its course in the same way, the result will be more conflict between monetary and fiscal policies—and a risk that inflation becomes entrenched.

On the other hand, lower costs in the UK combined with the usual slowdown in tourism across the Atlantic in autumn have made this possible on a 21-day advance purchase:

If only I weren't moving or performing in an opera in the next eight weeks, I'd buy a ticket to London right now.

Anthony's Song

I'm movin' out. A lovely young couple have offered to buy Inner Drive World Headquarters v5.0, and the rest of the place along with it. I've already gotten through the attorney-review period for IDTWHQ v6.0, so this means I'm now more likely than not to move house next month.

Which means I have even less time to read stuff like this:

Finally, American Airlines plans to get rid of its First Class offerings, replacing them with high-tech Business Class and more premium coach seats. I'd better use my miles soon.

How is it 5:30?

I've had two parallel tasks today, one of them involving feeding 72 people on Saturday. The other one involved finishing a major feature for work. Both seem successful right now but need testing with real users.

Meanwhile, outside my little world:

  • The XPOTUS seems to have backed himself into a corner by lying about "declassifying" things psychically, after the Special Master that he asked for called bullshit. Greg Sargent has thoughts.
  • Pro Publica reported on Colorado's halfway-house system that sends more people back to prison than it rehabilitates.
  • The Navy has begun its court-martial of Seaman Recruit Ryan Mays, accused of lighting the fire that destroyed the USS Bonhomme Richard in 2020.

Finally, Ian Bogost (and I) laments the disappearance of the manual transmission.

Happy Friday, with its 7pm sunset

It happens every September in the mid-latitudes: one day you've got over 13 hours of daylight and sunsets around 7:30, and two weeks later you wake up in twilight and the sun sets before dinnertime. In fact, Chicago loses 50 minutes of evening daylight and an hour-twenty overall from the 1st to the 30th. We get it all back in March, though. Can't wait.

Speaking of waiting:

Finally, Fareed Zakaria visited Kyiv, Ukraine, to learn the secret of the country's success against Russia.

Strike averted

The President announced this morning that negotiators have reached a tentative deal between the railroads and their engineers and conductors, averting tonight's planned strike:

Freight rail companies and unions representing tens of thousands of workers reached a tentative agreement to avoid what would have been an economically damaging strike, after all-night talks brokered by Labor Secretary Martin J. Walsh, President Biden said early Thursday morning.

The agreement now heads to union members for a ratification vote, which is a standard procedure in labor talks. While the vote is tallied, workers have agreed not to strike.

The talks brokered by Mr. Walsh began Wednesday morning and lasted 20 hours. Mr. Biden called in around 9 p.m. Wednesday, a person familiar with the talks said, and he hailed the deal on Thursday in a long statement.

“Most importantly, for the first time ever, the agreement provides our members with the ability to take time away from work to attend routine and preventative medical, as well as exemptions from attendance policies for hospitalizations and surgical procedures,” the presidents of the Brotherhood of Locomotive Engineers and Trainmen and the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers said in a news release.

Excellent news for the unions! And for us travelers, and for us consumers. Whew.

Rail strike more likely

Chicago's heavy-rail commuter district, Metra, started cancelling train service that would extend past the midnight-Friday start time of the planned nationwide rail strike. Well, taking the El to work instead of Metra adds about 9 minutes to my commute, so I'll have to deal with that on Friday, I suppose. Except that commuter rail shutdowns don't even start to illustrate how bad this strike could turn out for the US economy:

[A strike] would cause immediate problems for manufacturers, says Lee Sanders with the American Bakers Association. This is nationwide. And a broad range of manufacturers who get parts, packaging and raw material delivered by rail would be effected.

"If we don't get the ingredients that we need to our plants, we won't be able to make the products that we need to get our wholesome products to the consumers," Sanders says.

So, empty shelves are a possibility. Farmers are worried too about shipping grain. Dangerous chemicals have already stopped moving. Especially valuable goods are next, and passengers are getting stranded too.

Don't forget about coal, either. About 22% of US electricity comes from coal-fired plants, including 30% of Illinois' power. (As it turns out, Illinois has a higher proportion of nuclear power—about 54% of output—than any other state, which gives us a bit more reliability.)

I have a lot of sympathy for the engineers and conductors, whose schedules seem even less predictable than even fast-food workers. I hope the railroads agree to better scheduling and time-off provisions before Friday, or we're going to have a major economic disruption while we already have high inflation. Not a good combination.

Good thing there's an El

My commute to work Friday might get a little longer, as Metra has announced that 9 out of its 11 lines (including mine) would likely not operate if railroad engineers and conductors go on strike Friday. Amtrak has already started cancelling trains so they won't get stranded mid-route should the strike happen.

In other news:

  • Cook County tax bills won't come out until late autumn, according to the County President, meaning no one knows how much cash they have to escrow when they sell real estate.
  • The Post has an interactive map showing everywhere in the US that hit a record high temperature this summer.
  • US Rep. Marjorie Taylor "Still Smarter than Lauren Boebert" Greene (R-GA) has come up with a climate-change theory so dumb it actually seems smart.
  • US Sen. Lindsay Graham (R-SC), another intellectual giant of the 117th Congress, proposed a Federal abortion ban, demonstrating a keen command of how most people in the United States view the issue.
  • Robert Wright explores "why we're so clueless about Putin."
  • Block Club Chicago explains why my neighborhood and a few others experienced massive geysers coming out of storm drains during Sunday's flooding rains.

Finally, right-wing lawyer Kenneth Starr died at age 76. No reaction yet from Monica Lewinsky.