Future Options for Economic Policy

Gay, welcome back to Gary's Economics. Today we are going to explain everything you need to know about bond markets Okay, I know what you're all thinking. You're thinking, whyy is Gary wearing a vest? The reason is because it is incredibly hot in London. Now the elephant in the room has been handled We can move on to the next thing that you're thinking, which is why is Gary not talking about Kiss Aara resigning and Andy Burnnam becomeing the next prrime Minister And that is because we all knew that was going to happen like weeks and months ago. If you really want to know about that, you can watch my video from three weeks ago, open it in a new tab and you can watch it afterwards What we want to talk about today is I want to give a really good explanation of Something which is more important in a way, which is not the sort of the face who is in charge, but really the economic power that has been driving economics and politics in this country for at least about a year and a half and which is going to drive economics and politics inccreasingly in basically every country in the world in the next s of five ten years and that is bond markets. Bnd markets have been Tremendously badly covered in the media, almost comically bad. My favourite moment of absurd media coverage of the bond markets is this from the Guardian last year YouTube radicals such as Gary Stevenson act as if John Maynard Kyes had never been born Without wealth tax, the UK will soon go bankrupt, he warns. an unlikely thing to happen in one of the richest countries in the world with its own money printing press Traders are about to bring down the government, he told Guardian Readers in January Ten months later, we awake the excitement That is Adicha Chakraborti hilariously failing to recognize that the bond markets have been basically in charge of his government for about a year and a half We'll get back to that, but first we need to explain what is a bond All right, so I want to really break this down like from absolute basics so you really, really understand the bond markets, government bond markets, and we have to start with what is a bond The most important thing to understand, if you want to be clear about this is very, very simple, a bond. is alone I think that is the first thing if you replace the word bond With alone it's going to make everything much easier to understand the government borrows a lot of money and it borrows that money using bonds. A bond is a loan. The government borrows money from largely wealthy people, also things like pension funds, and it calls those loans bo The only difference between a bond and a loan is you can sell a bond So for example, if I lent Jack a hundred pounds He gives me like a I are you Jack owes me one hundred pounds and I I can sell that Todave for ninety pounds. And then Jack oes Dave pounds. So a bond is literally just a loan but we can sell it, we can transfer it between each other The reason these are important is because governments all across the world borrow really an enormous amount of money Whenever the government wants to spend money on things like education or healthcare or pensions or things like Investment like building a new bridge or a new train line or a new road or a new hospital It broadly has two ways to cover that spending. It covers most of its expenditure through taxation But when it has big payments to make, like for example, especially when we have Big crises like two thousand eight or like COVID, or perhaps when governments want to make big investments, they tend to borrow the money to do those things. Over the years, especially because of the many recent economic crises Governments have been borrowing more and more and more money. The total amount of UK government debt is roughly equivalent to about one hundred percent of GDP. so equivalent to roughly everything the country produces in a year comes out at about forty three thousand pounds per person. So your share of the government debt is forty three thousand pounds per person. That's not per adult, that's per person. So if you've got like a newborn child He owes forty three thousand pounds he or she, obviously So it's a lot. UK government datta is a lot. But that one hundred percent, I think the exact number is, yeah, just over one hundred percent It's pretty normal for advanced Western countries US, France and Italy all owe slightly more as a percentage of their economy, about one hundred and twenty, one hundred and thirty percent Germany and Australia owe slightly less, about fifty or sixty percent And Japan famously owns much more about two hundred percent But these are big numbers. you know, forty three thousand pounds for every man, woman, child in the country, that is how much you owe. to primarily richer people as your share of the government debt. Yeahah, huge amount of money And the way that this tends to work is The government will when a government borrows money using a bond using a loan, the average length of that loan, the time period of that loan in this country is something like twelve to thirteen years And because the government has been borrowing for, you know Hundreds of years, they're constantly having to pay off the loans from twelve, thirteen years ago. So I looked up just this morning, like when are the government's loans due? And the government has like tons and tons of tons of different loans. So the government has one big repayment of the loan due on the twenty second of July this year, one on the twenty second of October One of the twenty ninth of January next year, one of the seventh of March in twenty twenty seven So basically sort every three months or so, the government has to make a big repayment of one of its loans from you know twelve or thirteen years ago or something like this. The way that it always makes those repayments is it basasically refinances the loan. So it's a bit like if you had a A mortgage, which was a ten year mortgage or say a five year mortgage, you've got a five year fixed rate on that After five years, you have to go back to the bank and you have to say, okay, I want to extend this loan What rate will you give me now And When this happens, obviously you would go to your bank and ask to extend the mortgage But what governments tend to do is they go to government bond traders So the eventual lenders, the people at the end of the chain who lend the money to governments are Usually wealthy individuals, things like pension funds, sometimes foreign Gvernments and you yourself could also buy government bonds. I am a holder of government bonds in my sort of investment account But largely the vast majority of Government bond purchases, people who lend money to the government when a when a previous loan expires. are the bond traders. I was a short term interest rates trader for a long time. It's very similar to a bond trader. but when The government has a on maturing It will basically go to financial market traders and it will say we need to borrow fifty billion pounds, twenty billion pounds and they will do an auction Essentially it's a kind of gamified A negotiation between the government and the bond traders What interest rate will you charge us if we want to borrow twenty billion pounds on twenty second of Now this is why the interest rate matters because every three months the government has to refinance one of these loans. A lot of these loans are at currently at very low interest rates because We had a period of time from two thousand eight until about twenty twenty two when Central bank base rates in the UK and across the world, Bank of England base rates, Fed ECB base rates were zero And this meant that Wealthy people couldn't get much interest on their money, so they were very willing to lend money to the government for very low interest rates, you know as low as one or even I think during COVID, it fell as low as almost almost zero percent, almost interest free. But now many of these loans from The sort of twenty ten's period are coming due and the government is having to refinance these loans. And if it cannot convince the financial market traders to lend them the money at a good cheap interest rate Th every few months, the interest rate which the government has to pay on its very, very large government debt. Remember, it's in this country forty three thousand pounds per person. It's a bit more in a lot of other western countries. If they cannot convince the traders to refinance those loans at a decent rate every three months the rate of interest that the government is paying on this very, very big stockpile of debt is going to slowly creep up over time Okay, why does that matter? We did cover this in a video last year, which I will put a link to here, but I'll cover it quickly again. The reason it matters is that if you are paying large amounts of interest on your debt, then your debt is going to grow over time U and The government has a bit of an advantage when it comes to managing large amounts of debt. Well has two advantages specifically which is one Inflation I, which I call that I and economic growth, which I've written here is G. So when the government borrows money, just like if you borrow money on a mortgage, that is not adjusted for inflation Technically in the UK government's case, some of their loans are adjusted for inflation, but most are not and in most countries of the world, The majority turn not So what that means is if we have large inflation like we have had in the last few years, The value of cost, the price of everything in the economy can go up twenty three, forty percent, but the debt stays the same which means that effectively The stock of debt, the amount of debt the UK government has is being devalued buy inflation every single year. This is similar to sort of if you buy a house for half a million pounds. you borrow four hundred thousand pounds, and then there's a load of inflation, the house price doubles to a million pounds. Your debt relative to the value of your house has fallen It's the same. If you have a lot of inflation, prices go up. The debt of the government falls with to ablation Growth is more of a real thing, which is Again, the the the amount that the government owes on its loans is not adjusted bas on government growth, based on economic growth sorry. So if the economy is growing The size of the debt relative to the size of the economy is going to shrink every year. So these two factors together inflation plus growth, work together to make the debt smaller relative to the size of the economy And what this plays against is the interest rate which I'm going to call it R. So basically you have a kind of contest between these two factors Inflation and growth versus the interest rate. So the reason that the UK is in a bit of a tricky spot now and has been for a couple of years is because over time, as interest rates have been trending up globally, the interest rate in the UK has been ticking up to close to five percent So the moment, looking today the UK interest rate on ten year loans, which is sort of average level Average length of the loan is four point seven seven percent The reason this is a problem is that if we look at inflation and growth. Economic growth in the UK and in most of Europe has been pretty low for a long time. It's been sort of long term trending at something about one percent a year, not very high. And the inflation rate which is targeted by the central bank in the UK is two percent a year They've generally been failing at that. It's been a bit higher But if we assume that the Bank of England is good at its job Inflation should go back to about two percent and economic growth It's on a long term trend of about one percent So if we add these together We get three percent, which is significantly less than four point seven seven percent This means that We are in a state where Every year that debt stock is going to grow by its own accord, basically This difference is only one point seven seven percent. inflation has been higher, which is going to help. But if inflation goes back down and crucially, if this were to go up, that could start to become a big difference relatively quickly. And then traders are going to start worrying, okay, What is that debt just going to grow and grow and grow in an exponential fashion So the real risk of this, this risk of the interest rates slowly going up in a way that means that the debt starts to grow is basically something which I've mentioned a number of times on this channel before, which is compound interest, which is If you grow by two percent a year, two percent a year doesn't seem like much, but within ten, twenty third years, it grows in an exponential way. But it would be more than exponential, right? Because If the traders can see that your debt is growing, they're going to start worrying that in the long run, you might not be able to pay the debt back. or you might be tempted to do What the guuardian suggested, which are just print tons of money, which is not going to be great for people who are owed money because the money will be devalued and they are going to start demanding highigh interest rates. And then if the interest rate goes up, then you have to pay more interest, which makes your financial position even less sustainable which means that it means you have to pay more interest every year and it means the traders are going to ask even higher interest rates, which in turn makes your financial position is sustainable, which means higher interest rates. So you have the potential for this negative feedback loop, which is High interest rates lead to negative perception of government finances, which leads to even higher interest rates, which leads to even worse perception of government finances And this can get bigger and bigger and bigger and this has the potential to lead to what is sometimes described in the press as a death loop or a doom loop And this is essentially what happened last January. So There The reason that the Guardian wrote theZle last year is So I was interviewed my paperback of my book The ay gay Number one on Spotify last year, fantastic. great book I was interviewed with the Guardian last year in January, which is when the paperback came out and this thing happened which was The interest rate on the government bonds were getting higher and higher and higher and higher and higher. And it was really at risk of starting this kind of do loop spiral. would it was only sort of six months into the Stama government. U and Really like the UK government, the Labour leadership, Starm and Reeves They kind of had no choice but to like totally like shit themselves. B massively back down. massively retrench any spending plans. You know this is why they tried to do things like cut benefits, you know, tried to think about how can we raise taxes? becausecause we had this situation last year in January in this country where there was a very, very real possibility of the bond markets basically decapitating the UK government in a very similar way to what they did through Liz Truss in I just trust twenty twenty When did the quQeen die? God bless us so. twenty twenty two, let's say, Miss Tuss. you know Financial markets essentially deposed one British prrime mininister within something insane like forty five days or something, just a few years ago very soon after coming into office, and they were really at threat of decapitating the Starmer government at the beginning of twenty twenty five after just six months. They got very lucky. the UK government they got a good inflation print, which meant that interest rates came down a bit. We'll get into that a little bit later But the truth is, ever since that moment, january twenty twenty five and When I you know, when I talk to politicians, labour politicans or people in government, you really, really get this sense These guys are basically terrified that anything that they might I'm Archmanning. I'm Madison Skinner, I'm Ev Yovich. I'm D Coria Moore. W want to train like a Red Bowull athlete. Tell us your fitness goals this summer to enter the Red Bull Athlete challenge. You'll get to try each of our workouts for a chance to win an ultimate Red Bull experience. They you have what it takes Take your flexibility beyond the mat PayPal Pay nothing at checkout. Then enjoy a flexible monthly payment plan that works for you. withith no sign up or late fees. Find yours then, and an easy way to pay. With PayPal. Download the PayPal app to get started. sububject to approval. pay Monthly consonsumer loans made by Webank. available through PayPaling N ML nine onezo four fivety seven. Learn more at payPal d. com slash payonthly do economically, anything that might want to do economically will cause a repeat of what happened to Stam and Reeves Rves is is well is still our Chancellor for those who are not in the UK, which is you know the finance minister Yet they are constantly terrified that what happened to Distrust in twenty twenty two and what very, very nearly happened to Kara in twenty twenty five will happen again. And this absolutely dominates their economic policy. and it has meant That really Our government and you if you're not in the UK, I guarantee you this will happen to your government. It probably already is happening It's been ever since january twenty twenty five like completely handcuffed by this terror basically, that anything it might do which is not approved of by bond market financial traders will lead to a doom loop and will lead to like the forced deposition of the Prime Minister And u This is what I really enjoyed when the Guardian, this is I don't think anything could be more guardian doneone To have the financial markets like basically do like a hostile takeover of your government and enforce austerity on working people and to have the guardian one year later like laugh at it because they haven't realized that it's happened Like I think this is the most I think nothing could describe more the British upper middle class. because of course What has happened is, you know richer people, such as the people who write for the Guardian and some of the people who read it, you know, have been protected whilst the poor have been decimated, largely because the bond markets have basically taken over the UK government. If it wasn't serious, it would be more funny, but it is still it's just This article, this o how funny How funny Gary said that bond markets would take over the country. It's incredibly let them meat cake, isn't it? Look at that, if' know it is, another cultural reference from Gary's Economics Okay, so next, what can we do You probably don't want to be in this situation where your government's economic and financial policies are totally dominated by a bunch of financial market traders who are not democratically elected and are usually quite rich people and don't have any particular reason to care for the well being of the people in your country. What can we do? Can we stop it I think the best way to discuss how we should respond to this how we can Stop it is to deal with, I think the three main misconceptions and misrepresentations about the bond markets that have been very prevalent in the British press in the last sort of Six months, one year So I've got you a list here of three nonsense stories about the bond markets. And the first one is that all of this bond market nonsense is entirely the fault of Andy Burnham Uh so For those who don't know Andy Burnham was mayor of Manchester He is almost certainly going to become the British Prime Minister in the next couple of months, maybe even in the next few weeks U and The press here in the UK has been understandably in this kind of psycho drama of willill Andy Bynen become Prime Minister Women Andy Byen become Pime Minis And there has been a continuing trend of basically largely coming from more right wing newspapers, basically saying that The whole reason that UK borrowing costs are high, UK interest rates are high is because Andy Burnham, financial markets hate Andy Burnham. Andy Burnham doesn't know anything about economics, this kind of stuff. And that analysis is basically completely nonsense, and I'll explain why So in order to explain this, we need to discuss a little bit about what is it thatest the investors in government bonds, so the people who lend to big national governments like the British or American governments, what do they want Okay, so you need to think about why would an investor, a very wealthy person decide to lend the money to governments, decide to buy government bonds when they could do Other things like by the stock market, the stock market has gone up enormously in the last few years. buy gold, the gold price has gone enormous in the last few years Why would you choose to lend the money to the government, buy government bonds But when you lend money to the government, you know exactly what you're going to get back , you know, you're going to get what you lend in and plus your You know, four and a half five percent every year that is in there It's not Like a particularly sexy return, you're not going get what you make you know, buying some of these tech stocks or you know what you're going to get if you bought Bitcoin or even I mean, even the gold prices have gone crazy. So you're totally losing your ability to own assets which you know could double or treble in value like we've seen from a lot of the stock markets in the world in the last few years and like we've seen from the gold priice. So why would you choose to buy, why would you choose to make this like relatively unsexy Investment choice, which doesn't have a lot of growth potential, which doesn't have a lot of upside. And the reason investors like to do it is basically two things, which is diversity and security So the first thing to recognise is a lot of investors in government bonds don't just own government bonds. they also own stocks and gold. So and you know and property and land and what invest and I've spoken about this in my Iran More video how you know I own a lot of oil, you know, and it's Really what most rich people want to do is build like a very diversified portfolio of assets. If you're very rich, you don't need to put all your eggs in one basket. you can basically afford to buy a little bit of everything. So most wealthy people, especially very wealthy people will own a lot of stocks and a decent amount of gold, they probably have a property portfolio and they would also have a big chunk of government bonds, loanans to the government. And the reason they like the government bonds is because government bonds tend to do well at times of economic crisis. So you know You would probably be aware that when there's really bad economic news, like most recently, most obviously thingsings like the Iran warar or the Trump tariff crisis from G was that last year from last year or a couple of years ago? I think it was last year, Trump tariff crisis. When those things happen, the stock markets tend to suddenly fall quite a lot and stock markets can fall twentycent, thirty percent, you know If know if you look at the gold price, stock markets now, they've gone up so much, there's a very real chance of like a very aggressive fall down. Government bonds tend not to do that. because we know exactly how much money we're going to get back and we know we're going to get exactly our whatever are four or five percent interest every year, they are an incredibly steady but unsexy option. and they just give you like a regular, steady income Every single year And this is why they are seen as the secure option. And they're a very popular investment for very low risk investors. So a lot of pension funds will own a lot of government bonds because pensioners like to have a steady stable income A lot of insurance companies will have government bonds. If you have a lot of money in a bank In just a bank savings account, they will probably be using that money to buy government bonds to into the you lend to the government because they don't know when you're going to take their money out So basically any investor that either is so rich they want have a very diversified portfolio or for some reason is very risk averse and wants a very stable, secure investment. is going to buy government boons So what do government bond investors want and what do government bond investors not want?? So the number one thing which government bond investors want, people who lend to the government want, is low inflation. And the reason behind this is When we have inflation, like we've had a lot of in the last God five ten years is The price of everything goes up. The price of everything goes up and this generally includes stock prices, gold prices, house prices, land prices. But what it doesn't include is government bond prices. becausecause if you lend money to government, then you have a fixed return on that. You're going to get your one hundred pounds plus your five percent interest and that is not going to go up. So if we suddenly have like a very inflationary situation, government bond investors really, really lose. So if you are thinking and this is something which is relevant to you, right? Like if it's the same if you put your money in a bank account. you know, if you just put money in a bank account and get five percent, suddenly there's an inflation crisis and the price of everything goes up, double, you've effectively lost half of your money, right? So government bond investors hate high inflation. Second thing that government bond investors want is stable government finances. This was the big thing that really hit Liz trrust. Liz Trust came in, suddenly slashed tax on rich people. Government bond investors were looking at that and thinking, well, is she actually going to be able to pay us back? There's this saying in markets, you the return of your capital is more important than the return on your capital, you don't want to be lending money to somebody who seems just like they don't have any concern for their long term capacity to Pay your money back And there's two risks on that. There's one risk is if their finances are very unstable, that they literally won't be able to pay you back The other risk I think is sort of hinted at in that Gardian quote I said at the beginning So basically this interesting thing in the Garden quote, which is It's unlikely the UK will go bankrupt when it has its own money printing press. And this is one thing which In an age of like increasingly unstable government finances, one thing which government bond investors are always wary of is that maybe The government will be like, well, we can't afford to pay these guys back. So let's just print the money And I think I've done videos on money printing in the past, which I find on all linkit up That You know, if you look at the history of collapsing empires, collapsing societies, I think we're in collapsing empire andap a collapsing empire and a collapsing society now, not just here in the UK, but across the Western world in the US. There almost always comes a point where governments just think, you know what? let's just print tons of money. And what that almost always does is causes an inflation crisis. I think we can make A good argument, a good argument that this is part of what happened in In COVID again This is a risk of causing a massive inflation. and if there is a mass inflation, you don't want to be holding the bonds, you won't be holding the assets. Basically, stable government finances are good, Unstable government finances are bad. Becauseuse they might mean don't get your money back and they might mean that the government really basically deflates the money before you get it And the third thing, which government bond investors want is they want low central bank interest rates. So this is very slightly technical, but if you're in the UK, you'll be aware there is a government institution, sort of quasi independent government institution called the Bank of England that sets the interest rate every month. There is a similar institution in the U.S called the Federal Reserve In Europe, the ECB, in Australia, the IBA, every country has one of these. and they try to set the interest rate on cash every single month or you know maybe every month every six weeks to basically try to keep inflation like low and steady. And if they think inflation is going up then they're going to raise the interest rate. And that's we've seen obviously a lot of that happening in the last Five years since COVID, inflation's been high. So interest rates have gone up And if you are a government bond investor, you don't want this because if you think interest rates are going to go up and this is something I made a lot of money of my money on it when I was a trader During COVID Interest rates were like zero And the interest rate you can get on government bond was like less than one percent. Obviously after COVID, the interest rate went up. very quickly. And now as you know, government bonds in the UK trade about five percent depending on You know, the maturity, how long term they are The reason that the government bond prices have gone up is largely because the central bank interest rate has gone up When you have cash, in a bun. The government pays your bank interest on that based on the central bank interest rate. Which means if you shop around, you can normally get something similar to the central bank base rate on a savings account on your cash. If you're not getting that, shop around, try and get a better rate But if you are say say we know that And I'm not saying this is going to happen. Let's say we're in a situation now where we know there's going to be another inflation crisis And interest rates are going to go up to ten percent But I don't want to buy a government bond now that's paying me five percent when I know that if I hold onto the cash, I'll be able to get ten percent on the cash So these are the main three things which government bond investors want. They want low inflation They have government finances and they want low central bank interest rates. Low central bank interest rates and low inflation are quite connected because if inflation is low, probablyro the interest rates will be low as well But this is the thing you need to know In order to understand why the attacks on Andy Burnham in the last few months have been kind of nonsense, right? So You are probably aware there is still, I think, at the moment of speaking, a war in Iran, although Every single day there's rumourors of a peace deal but that's been happening for months. And that war in Iran has aggressively pushed up the price of oil and many other things all around the world and it is causing increases in inflation all around the world And one thing that is particular about this inflation crisis and this war in Iran is there's really a lot of uncertainty about and there has been from the very beginning about how long the war willill last And as a result, like how big of an impact it is going to have on global oil prices Oil affects the price of global energy. Energy is used in the production of basically everything. So if the oil price goes up, the price of everything goes up. whichich means that in the last few months, there's been a huge amount of uncertainty in the world, amongst traders, amongst economists about what inflation is going to be The central bank sets its interest rate to respond to inflation. So if inflation is uncertain then the interest rate is uncertain And that means that traders all over the world, especially interest rate traders I just constantly reading the news, watching their phones, talking to each other basically to try to figure out when the Iran war is going to end And that level of extreme uncertainty Because as you now know Government bond investors are very, very concerned in inflation Central bank interest rates and government financial sustainability And all of these three things are really heavily affected by the question of how long will the Iran war last What that means is The huge amount of uncertainty about all of those three factors has meant that government bonds have become incredibly volatile in financial markets. And what that means is You know, you'll get in a given day where the You know, the interest rate will move. You know, the kind of size which previously you might have seen that move might take a month, that move will be happening in a day or two days. And that has been happening quite consistently in the last few months ever since the Iran W started. Government bond prices and government bond interest rates have been incredibly volatile because of all of this uncertainty about inflation and uncertainty about interest rates And that has obviously coincided in this country in the last few months with a period of intense speculation about Whether and when Kistama will resign, he has resigned. Congratulations to Kistamma and whether and when Andy Beren will become Prime Minister. So you've had these two things happening at the same time, which is We don't know when the Iran war will end, we don't know what inflation will be, and we don't know if Andy Bern will be Prime Minister And that has meant that we have had on a few occasions, we have a day where something happens about Andy Barnam and it looks like he's going to be Prime Minister And on the same day, something happens on the Iran War, and it looks like the Iran warar is going to be longer than we thought And what you will get is a collapse in demand for government bonds because of the Iran warar. And some of the press has frequently, you know, I think even institutions that should be respected, such as the Financial Times will say, o government bond investors are panicking because of Andy Ber And you know As soon as I hear that, I would just very quickly open I just open I'll look at Bloomberg and you can see What is happening to all of the Government bond markets around the world And you'll see that obviously because the whole world is affected by the Iran warar, all of the bonds around the world will move So the interest rates For basically every country in the world on a big day might go up byy note point one five percent, note point two percent U and you know, I can' very easily I can put up just I'm looking at it right here. you can see what's happened to Germany, UK, France, Italy, Spain, USA, Japan, you know, Australia And you'll be very able to see that what is happening is international And if Something happens in Iran And something happens to Andy Burnham And Government bond prices move in every country in the Western world That's probably not caused by Andy Bernon, right? That's going to be caused by the Iran war. And these stories keep happening again and again and again over the last three months and they are Yeah I don't know Any Bham I' never met Any Burnham, but these stories, if I'm totally honest, are and have been repeatedly completely idiotic to the point that they're basically verging on propaganda. The first misconception is that the global bond market crisis is caused spepecifically B Andy Ber, which is a nonsense. But We must also talk now about the second misconception about bond markets And the second one, which is where we have to be a little bit more critical abouty Bing them, is an idea that that often gets repeated on the left, by different sections on the left Which is basically that bond markets are like dickards. They shouldn't be in charge of the country. get rid of them. And you know, this This is a sentiment, which I totally understand. Anybody who knows about my history and has read my book will know that I am not the biggest cheerleader for financial traders and You know, of course, your government and your economic decisions should not be being dominated by a bunch of traders in the city. But the problem with that is quite simply, this graph, which you' used a number of times, will'll flush it up maybe here Iit this graph, which I've used a number of times on the channel is a graph of UK and various other countries Government wealth over time So a big thing which we are like really keen to educate on this channel is that wealth exists. It is important, it's important who owns it, it is real. It's not just money in the bank, it's about who owns real resources. And back in the fifties, sixties, seventies, up until the early eighties, Western governments were big owners of wealth, governments owned huge amounts of wealth. And since the eighties, since the sort of changes in the way we talk about, think about economics You know, largely pushed by Ronald Reagan in the states, Margaret Thatcher here There has been a change in the way we treat government wealth, the way we think about government wealth And that has led to a decision over the long term to significantly decrease the share of the real wealth in the economy owned by governments And in the UK, since the eighties, the share of the UK economy, UK wealth owned by government has gone from plus one hundred percent of GDP. SoK the UK government own lots of stuff, not being massively in debt to negative one hundred percent of GDP, which is the UK government not really owning anything and being massively in debt And alongside that, we can show you this graph now, which is UK government debt as a percentage of GDP. and you will see that that has been like statistically, structurally growing over a long periods of time This is the reason why When people on the left, well, not just on the left, but this sentiment does tend to come from the left U sayay like the bond markets, like we don't need to worry about them. Wein do whatever we want That is quiet Naive. Because when you look at the long term trajectory of not just UK government wealth, but basically every Western government wealth and also notot just UK government debt, but L term UK government deb There has clearly been a long term strategy of Western governments, both on the centre left and the centre right to basically disve assets and become long term dependent on increases of borrowing. So what this means is Whereas Governments used to own assets, which meant they could provide you with public services using those assets. have chosen to get rid of those assets, transfer those assets to the wealthy, and replace the way that they fund your government services rather than providing you government services using assets that they the government own. they now provide you government services by borrowing money from the rich and they borrow more and more money from the rich every year. And especially whenever there is any sort of long term major crisis two thousand eight COVID, you know even now the Iran warar, the energy price crisis that just came out of COVID. Every single time that happens The structual response of the UK government The U.S. government of Western governments. know Biden did this enormously Joe Biden in the U.S. The struct response of governments Well it's not even a left right issue because Donald Trump has also, again, significantly increased borrowing. Whenever anything happens in politics or in economics Political pers of the center left and the center right respond by trying to borrow money from rich people. Your whole economic plan for forty years has been, we're going to give all of our assets to rich people and just borrow money from rich people You can't really turn aroundound and say, well, Gom You know, because and this This is the reason why I campaign for and have campaigned for such a long time on the necessity of taxing rich people because Once you move into this situation where the assets are increasingly owned by rich people Assuming the thing which is obviously true, which is you regular people need access to assets like buildings, like hospitals, like schools, like food, like homes, like water, like energy, you need to have some way getting access to those assets. And you basically have a choice to make, right? which is either Youack to rich people or You borrow from rich people And I sometimes get very frustrated because I've been trying to convince like the UK political left for more than ten years now since way before I started this channel that they need to be more serious about building their capacity to tax the very rich and In many cases, there's not been much appetite for that And now we have people on the left have not really supported our campaign to build structural capacity to tax the rich and have built their whole economic long term plan on borrowing from the rich turning around and saying, well who giv about the bond markets If your entire economic strategy is to borrow money from rich people, then you will be a slave to the bond market And if you do not want to be a slave to the bond market, the only way you can do that is to sort out your capacity to tax very rich people. These guys own all of the assets If you are unable to tax them, then you will be unable to access the physical assets and wealth that you need to sustain a good economy without borrowing from them, and you will continually be a slave to the bond markets. All right now this is the third one which I have been asked a couple of times in recent interviews because I'm on the press campaign for my upcoming documentary, Keep an eye out. which is that wealth taxes will be punished by the bond markets And this It reminds me of the econom the economist video we did a few weeks ago. Whether the economy is still like. We hate wealth taxes, we love inheritance taxes without realizing that from the perspective of the very rich, they're like structurally, functionally like the same tax which is it just reveals just like a just like a fundamental like economic incompetence and I think it's sort of It reveals this way that people kind of like anthropomorphysize the bond markets as if the bond markets are like the disembodied spirit of Margaret Thatcher that just hate anything that seems vagbe left wing. What the bond markets want is their money back Okay, the bond markets want highigh taxes and low government spending That doesn't mean that's what you should do but that's what the but markets want. Right? And if you increase your capability to tax very rich people That increases your ability to keep inflation low and can pay your creditors back. If you don't bring in your ability to tax rich people, it will become like the very, very rich As they get richer and richer and richer and the rest of society gets poor and poorer and poorer It will become increasingly very, very, very, very difficult for governments to Supp the poor, support public services, support the welfare state and pay the creditors back. and I think it's like painful obvious. like the best thing you can do in order to reassure your creditors is build the capacity to tax very rich people. And anyone who doesn't see Well designed wealth taxes Obviously what the bond market wants is Basically and'll be done But I think when we talk about this idea of like O if we try to tax the rich, it'll be bad for the bond markets I think In order to understand this conceptually I think it's important to recognize Higher levels of debt, government debt literally are Wealth in quality I'm going to unpack that a little bit because I think it's like it's an important like conceptual idea that you need to understand, right wealth inequality It' not an abstract thing, all right There exists a certain amount of physical wealth in this world land, houses, buildings, natural resources, you know, skyscrapers, you know, all of these things. And all of those resources are owned byy somebody And the wealth distribution is who owns those resources. And on top of The distribution of the literal ownership of real physical resources We also have Debt, which is a zero sum game, which is some people are in credit and other people are in debt. all right Low wealth inequality means The resources are owned in large part by ordinary people and governments. Okay, yeah, there are some people who own a bigger share But broadly everybody owns a bit. And low wealth inequality means that you don't have one group of society heavily indebted to a tiny minority. High wealthy equality means the vast majority of the assets in this country in the world are owned by a tiny minority of people And also, the majority of people are indebted by a large amount to the very rich. This is literally What wealth inequality is? And I want you to understand Wealth inequality is not just about wealth. It is about power Because who owns the resources is who is allowed to consume and who is allowed to decide how the physical resources of the physical world are used And if you have governments that own a big chunk of wealth and are not massively indbted to the rich, then governments have a lot of freedom to do what they want. And that is why in that post war period, you, from the end of the Second World War, up until the eighties, when Western governments owned large amounts of wealth. And I want to make it clear, this is about owning productive assets, you know schools and hospitals and land and houses, right When they own those assets, The ownership of those assets, combined with the lack of being massively indebted to the rich, gave them the power to provide ordinary people like your parents, like your grandparents with things like education and healthcare and housing and affordable food They own the assets, the assets produce the things that you need so they could provide you with the things that you need because they own them Now your government does not own those assets. Those assets are owned by the rich And on top of that, your government is in debt to the rich, which means that your government needs to pay a significant amount of interest to the rich every year And what that means is your government And essentially you as a taxpayer have become in a very real way slaves, debt slaves, to the rich. You don't own assets anymore. They own the assets. you need the assets to live and you need to pay them X amount of money every year on top of the money you need to get access to those assets because not only do you not own the assets, you are in debt to them So there's no point complaining about the fact that the bond market runs your government if you are not willing to actively fight against wealth inequality because they're the samein thing. If you don't want your government to be totally dominated By a bunch of traders in the city, then don't give all of your fucking assets to fucking twentyking guys. You I did my video last week on Elon Musk, right What I'm trying to do, the whole thing I'm trying to do in this channel is to make you realize wealth inequality is not some abstract thing. It's about who owns yourking country. It's about who owns your planet, who owns your houses Who owns your food? Wh owns your ability to produce all of the things that you need, R? There's no what really frustrates me is I continually see people Like upset about The consequences of extreme inequality, which is we don't get any access to the things that we need, housing, education, healthcare, food, you know leisure time, anything, opportunities unwilling to fight the obvious cause which is again, I'll show this graph. You've given them all of your in our assets If they've got the assets and you are in debt to them, then you are less likee And that's how it's going to be. And that's how it's going to be. you know, I I worry because obviously you know here in the UK, we're going to get a new Prime Minister and I hope that we well, I mean I've been cleared. I support that decision because you know We were never going to get what we needed under Kararam and I hope they would underburn them But I worry Stop This new government and you know there's no wood to touch I hope that they don't I worry they're going to come in and repeat the same mistake that Starmer made, which was the same mistake that Biden made, which is the same mistake that basically every k point the same mistake Macron made, you know the same mistake that the same mistake that Murz made, which is just fundamental naivety about the importance of who owns your wealth. You know, if you do not do anything about the situation, which is not just existing, but progressively worsening every year which is your government, your middle class, your working class, has less and less wealth every day and more and more debt to the super rich every day If you do not do anything about that then you will inevitably be an that. you know I'm really pleased that we're getting watched all over the world because I want other countries that are not in such an extreme situation as the UK to recognise This is what will happen to you It's you know, it's happening it's happening in Italy. It's happening in France. It's it's going to happen in the U.S. All of us We'll live in countries where we can vote red, blue, red, blue, whoever we want, and the people in charge are three hundred cont traders in the city. That is what happens. If you don't have wealth and if you are in debt, it doesn't matter who is in power because they have no power They have no wealth, have no power. And the only way the only way you take that power back for regular people, for democratically elected governments is to Fix your distribution of wealth And the only way you will ever achieve that is serious taxation of the extremely rich But you know, it's not just governments. It's not just governments. sameame thing is happening in housing. You know, if your government has no wealth, it cannot provide you with with a good wealth estate. But if you as ordinary families have no wealth Then you are not going to be able to out compete the rich for housing, and you won't get hous And and you're not going be to outomette the rich for food and you won't get food. You know, this is I'm really hoping that the point I'm getting through to you here is Wealth inequality is not an abstract concept. It is about who is allowed to live in a home Who is allowed to have education Wh is allowed to have healthcare? Wh is allowed to have holidays? Who is allowed to have leisure time? Who is allowed to have retirement? That is what wealth inequality is. There are not infinite amounts of all of these things. and if we allow ourselves to exist In mathematical systems where every single day these guys are losing share and these guys are gaining share, then your share will get less and less. and that is why you can't afford the house. And that is why in many cases, ordinary families can't afford food and heating Why that is why you can't afford a pension like your dad had That is why you can't you will never be able to retire. you know, it's We do not live. I get people who we sell zero sum, zero sum, we do not live in infinite sum games, right? And if we have trillionaires increasing their wealth at forty percent a year, this is what you get. This is what you get, no food, no housing and governments which can't do anything And this is why The UK situation is actually The UK has the highest borrowing costs of any major Western nation, and that is bad, very clearly. and that is why the UK government so much has its hands tied and it's so limited in what I can do. and I think Whatever you say about Kir Starmer. I think he probably did want to do more that he could do, but he was very quickly disciplined by financial markets and basically He was essentially deposed a year and a half ago and just sort had to sit on his own grave for a year and a half on his way out The UK government It' probably the first government in the Western world that has reached this point where it is no longer able to provide the things that citizens need by running I'll again show this graph, this graph down U what this graph of government wealth going down shows you is for a long period of time now Western governments have been providing you Western people, Most of my view is own the West with a decent quality of life by basically selling the family silver. Western governments were able to accumulate a big chunk of wealth During World War I, just after World War T. And they have been s providing you with a good standard living by selling that stuff back to the rich and by going in debt to the rich That is obviously never sustainable. You can only sell your assets once. The rich will only allow you to get into so much debt before they stop lending. And the UK goovernment has been the first one to hit that wall where they can no longer do this To be honest, in my opinion, frankly stupid thing that Western governments have been doing for forty years of saying, let's just give all our debt to the rich people who have no capacity to tax. You've hit that wall and you can no longer borrow You can no longer sell off your assets and now you have to choose And I think we are at such an interesting time here in the UK because we're about to go a new Prime Minister And I worry, if I'm honest, that he will be advised that he can He can get through this with some sort of financial economic jiggery pokery whilst that wealth transfer is ongoing and that will not work The UK government now is faced with the three clear options, which increasing will be the only three options available to any Western government, which is either significantly increased taxation on the very, very, very rich Centi billionaires, centi millionaires, billionaires significantly increased taxes on working people, higher earning working people or continue the gradual shutting down of the welfare state which has been happening for the last fifteen years in this country. Those are only three options. Those are only three options. And I want you the view are And you know you know, I want Andy Burnham who will be the new UK Prime Minister to be aware of that. There are no other options. Those are your three options. And I absolutely guarantee you that we in the UK and you, wherever you are watching willll see in the course of the next ten years, your government do a significant amount of at least one, probably a combination of two of these three things which is significantly increased taxation of the very rich significantly increased taxation of working people. or the dismantling of the welfareestate that your kin grandparents died for All right, these are your three options Um and I want you to know that. because And know, I'm aware and I've been saying this quite a bit recently that there are some like moderately rich people with people who might be worth one or two million or people with good jobs. H. don't like my ideas, don't like this channel. you know, so they want me out of the picture. So let's say you get me out of the picture You can't act the super rich anym You are then faced with only two options, which are significantly raise taxation on working people including high owners H the dismantling of the welfare state And Maybe you're thinking more, that's fine because what I' fight for is the dismantling of the worldfestate So once we dismantle the welfare state, And we enormously increased poverty in your country. We closed down all the schools. We closed down all the hospitals And know millions of people lose their jobs. And all of that wealth is accumulated by the very rich What do you think happens next And what do you think happens next? You know, If we don't deal with the taxation of the suuprich now, there's only one other option which is a fight to the death between the poor and the middle and which of one of those you're on You know if you think you're going to w U what happens when when the other side is gone You know, this aggressive growth of the wealth of billionaires There is a mathematical inevitability to this And there is a historical inevitability as well You know, read your history and understand that The the past two thousand years of human history is in ten guys and even like kings while everybody else in starves on the streets. That is all of human history, except for the last seventy years And we only managed to provide these things which we're losing now you know, a welfare day, you know, Education, healthcare, you know, the kind of education healthcare that I've had that my dad had had My grandparents and great grandparents never even dream of that. You know what I mean? The kind of secure housing, the kind of secure food But it's important to recognize that they did that by taxation of the very rich So that's it, That's the end of this week's video againain You know I think I've made a little bit of a ret turn back to these more depressing videos, but the reason I've done that is because We are going to have a new government here in the UK And if I'm totally Honest And you know, I've I've come out and've told people to vote for Andy Burnham and I've told people to vote for Labour in the recent by election, which which has gotten him into this position where he can become and he will become Prime Minister But if I'm totally honest, I'm worried I'm worried I was in Parliament all day yesterday trying to talk to politicians. But we are not professional lobbyists. We've got one member of staff here at Gary's Economics. and I'm not a professional lobyist. and I'm out there trying my best to convince Andy Berham and his team of the importance of this But obviously, every billionaire in the country is spending a lot of money to convince him That all he needs to do is some sort of technocratic, technical economic jiggery poery and everything will be fine And if that happens I know what happened which is It will be kissed arma two point zero and he will become very, very unpopular very quickly And it will be Nigel Farage. And whatever you think of Nigel Farraage, he's not going to raise taxation on the rich But if I'm totally honest My concern is not really Nigel Farrage. My concern is what happens after Nigel Farrage because u Burn and fails on living standards and if Burn and fails on inequality and if Burn and fails on the economy. I'll guarantee you that for ar will fail on living standards and for ar will fail on inequality. And for ar you fail on the economy. I like history. I read a lot about history. And I think it's important to recognize That what is happening now is not very dissimilar from what happened a hundred years ago Where inequality grew and grew and grew and grew and grew And u The billionaires funded the right wing of politics to say, don't worry about us. know kick the foreigners instead And every time a right wing party lost feailed on the economy, they went further and further and further and further right Another one that's happened I don't want to happen in my country, I't want it to happen in your country Well I've got good opportunity here I've got an opportunity to change things. And like I said, I'm not a professional lobyist but I promise you I've workking myking tipits off to try to communicate to this new government that they need to do this. I'm offering to help them in any way I can if they can show me some seriousness on it I'm working incredibly hard I've got my documentary coming out in a couple of weeks, which I'll do an announcement about soon. We've managed to get GabelZkman on the rest of politics And I'm hoping to do a bit of press and to create a bit of a moment about this so that we can put a bit of pressure on them O Andy Bernam and his new team T talk to me, to talk to Zman and to bring us in and do something on this You know, if I'm honest, I'm incredibly proud that we're at this point where we could maybe feasibly have a bit of influence on government policy But the truth is we're not there yet. and we don't know if they're going to give us the things that we need. If there's any way you think you can Supp the message, spread it Um, in this littleittle critical moment. you know, we might only have a couple of months to try and get this in.