MacroStrategy Partnership

***** Britain –> The government will not be able to raise living standards without significant cuts to public spending according to the think tank The Resolution Foundation. This is remarkable given it is seen as a left wing think tank. Britain’s living standards face a “catastrophic” outlook due to the surging cost of government debt. The “big choice” facing Burnham next year, “having not faced it at this Budget, is the choice between household incomes and department spending”. It said the typical working age household will see their disposable income fall by GBP1,050 between now and the next election.
The higher debt costs, which are poised to rise to GBP160bn by the start of the next decade, means “we are much, much poorer as a country”.
So far, governments have forced households to bear all of the burden rather than the state projects. Rather than allow inflation to eat away at state services, the government keeps topping them up, forcing the household to cover the cost.
The Institute of Fiscal Studies also said we face a decade of lost growth. Fundamental reforms are needed across a range of policy areas including energy policies, competition, education and tax. (Seperately, analysis by the Centre for Policy Studies shows the annual cost of hiring a minimum wage worker is poised to jump by more than GBP4,000 in just 3 years).

…macrostrategypartnership.substack.com/p/macrostrateg…

***** Crack Spreads are the new "Rate Hikes"....
– Spot Brent fell USD6.08 yesterday to USD114.91bbl, dropping below the front month Brent future at USD116.19bbl. Whilst the curve remains in backwardation beyond the front month, this gradual flattening of the curve suggests an easing of spot prices as oil continues to flow, but an elevated price for an extended period as dangerously low inventories need to be rebuilt. This would change the dynamics from inflation to stagnation.Gas and coal prices continued to rise. (The US lent oil companies 40m barrels from its strategic reserves, the last batch of the US share of the global IEA deal).

Obviously, the longer the duration of the high energy price, the worse the situation is, i.e. if its 8% for one day and then comes back down, it is irrelevant. The longer it is above that level, then theoretically the economy would be consuming down the internal energy gradient of the capital stock – (ie things would be depreciating and not being reinvested in) until eventually the economy was sufficiently weak that it declined and the energy share of GDP fell back below that 7.1% level.

…macrostrategypartnership.substack.com/p/macrostrateg…

***** Britain – The Institute of Fiscal Studies warned that Britain faces the worst decade for household income on record. The think tank said a typical family’s disposable income would rise by an average of just 2% over the 2020s in the wake of the budget, the worst growth since records began in the 1950s. It described the budget as “unhelpful fiddling” that would not change the grim economic path. The chart below shows, over the preceding 20 years U.K suffered the worst decline in total factor productivity since the 1780s, clearly the consequence of the growth of government. Interestingly, that was when the French Revolution happened.

…macrostrategypartnership.substack.com/p/macrostrateg…

***** The U.S.’s Exorbitant Privilege...

Reuters says the rising real yields reflect the scale of issuance, both from governments worldwide and from AI.
“There’s a competition for capital which is relatively unprecedented in recent times”
The US budget deficit is set to run at around 6% of GDP, France’s at 5% and the UK’s at 4%.

Central banks are also no longer buying bonds, which previously had suppressed bond yields, are favouring gold instead.

While the promise from AI is driving increased borrowing, lifting real yields, at some point the higher cost of capital, together with the cash burn, will be felt.

What the article doesn’t say is that the U.S. household savings rate has also been collapsing, reducing the supply of funds available for investment.

…macrostrategypartnership.substack.com/p/macrostrateg…

***** Australia – Gig workers must be paid at least AUD31.30 (USD22.11) an hour, a world leading minimum pay and above Australia’s minimum wage of AUD26.44, the Fair Work Commission ordered.
The Transport Workers Union said it was now the “world leading standard”. The order followed the U.N.’s International Labour Organisation’s decision in June to adopt the first binding employment standards for gig workers, giving them rights around pay, safety and social benefits.

Great news, but you'll likely only get 1hr's work a day, maybe less.....

…macrostrategypartnership.substack.com