What the Hell Just Happened in the UK? Pounds, Pensions & Panic
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- Опубліковано 26 кві 2024
- This past week was very eventful for UK, today I cover what went down and why it's important for investors.
DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice - Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer).
Update: the UK government has reversed its planned tax cuts after widespread criticism, with the PM distancing herself from her Finance Minister.
Liz Truss is like a child playing dress up and everyone took them seriously.
I am making a prediction. You will be visiting the topic of UK economical situation again before this winter is over
@@aluisious them?
They have only reversed the income tax cut on people earning over 150k. That is worth £2bn of the £45bn in tax cuts.
it's blowing me away how bad their leadership is. they seem all bad, like there's not a single one in the lot that's not incompetent and the generations of PMs that succeeded each other can't seem to do anything without it *immediately* blowing up in their face. it's both hilarious and sad.
Richard, just because many North Americans don't care about what goes on in the UK, please don't take that to mean that you should stop covering this stuff. This was the first good summary I got of the issues that have happened there, so thank you for the coverage (also thank you for your video on Sri Lanka's woes).
Seconding this. I'm sure a great deal of the Plain Bagels viewership is outside of the US, and regardless of where one lives these kinds of situations have a ripple effect on everything else. Keep up the content like this :)
Thirding this, for all of the previously stated reasons. Plus, I tend to have an innate affection for the way Canada rolls 🇨🇦.
@@julm7744 The education system in your country must be really bad oh my.
@@julm7744 You're probably trolling, but in case you aren't, the US had a war with Britain to become independent from them, about 250 years ago. . . I guess we "won". After that (and before that, if you remember Columbus and the rest of those "explorers") we proceeded to wipe out many of the native peoples (they were here long before Britain, Spain, etc., or that asshole Columbus guy). Hawaii had it's own thing going on, and in the 1950's I think, they became a state. Not sure if it was their choice or not, maybe Google it? So no, England, Great Britain, or whatever you wanna call it, isn't and has never been under the control of the United States.
@@julm7744 Also, Canada is not a place "inhabited by Americans who don't want to be called Americans". Canada is a place inhabited by Canadians who are proud to be Canadian. America is a place inhabited by Americans who want to kill their neighbor because Trump. It's a good reason, but we're gonna try not taking that route. I hope. ✌️
My wife and I are directors of our farm business and own property, plus small pensions. I am nearly 55, my wife is 52.
We have started to save to retire from the farm, and possibly live on rental income, I'd really appreciate you go LIVE and talk about how to earn passive income online and retire comfortably, let’s say $1M.
For the average individual, the tactics are rather demanding. Actually, most of them are effectively completed by professionals who possess the necessary knowledge and skill sets to carry out such trades.
i do not really know a lot about the market, but based on what little understanding I do have of supply and demand in the economy, now is the best time to enter the market. The only thing preventing me, however, are the steady price fluctuations, which shouldn't be a problem. However, I really need an advisor, can yours help?
I'm grateful for this advice. Finding your coach wasn't too hard. I researched her well before arranging to speak with her on the phone. Considering her resume, she appears competent.
One factor not mentioned is the method by which Kwasi and Truss instigated these changes without working with the Office of Budget Responsibility (usually the nerds in charge of making sure the maths is right, to oversimplify). They actively rejected working with this department. The market's violent reaction could be said to have been exacerbated by the fact that it appears the actions were not motivated by a sound model for the economy, but instead an ideological "shock doctrine" style one that leaves room for great uncertainty.
The market reaction is basic as f...
Bonds have duration, a market term for sensitivity to interest rates. The central bank is raising rates she's raising spending, gtfo because rates are hjgher
A 1% move in rates on a 30 year is a 20-30% bond price movement. This isn't a large move. It's literally over 1%. Wait for the other 2-4% to. Kick in as they further raise rates. The pensions got the appreciation on the lowering of rates side. Now. You take the losses going the other way, or you sell, further pressuring rates.
At the end of the day, they can only prop the market up so long. There are no buyers because 3-4% isn't enough to justify the risk now, and 5% means another 20% drop in bond values. Not good. But it has to happen. Truth is, lots of people who thought they were retiring aren't.
@@Tential1 Political factors have to be considered and bond markets are known to shift based on political uncertainty.
@@Tential1 I didn’t understand a word of what you written. is that good or bad?
Classic case of what happens when you give absolute control of a country‘s economy to liberal ideologues
As someone who lives in the U.K. I think it is worth mentioning this is the first time the Bank of England has ever had to rescue the U.K. economy from the U.K. government
I am a portfolio manager for pension funds and I was at the centre of all this chaos...the gilt market was basically in freefall for 3 consecutive days and we were selling everything we could to meet collateral calls... if BOE hadn't stepped in, couple of the large funds (multi-billion in size) would have been insolvent by Wed market close, and I would be posting this as an unemployed man...Like your video as always!
Will it continue next week?
@@leswhynin913 I think BOE only bought us time (to reduce leverage and prepare enough liquid assets), they now need to hike even more (thanks to the inflationary mini budget), and still have to unwind the massive balance sheet they accumulated throughout the years...so I am not optimistic...
@@julm7744 If the interest rates can't get close to inflation, the markets will not move back into bonds. It is better to assume some risk than lock in a loss with inflation.
@First name Last name and let millions of people lose their pension?
@@dr.carrot756 When people make bad investment decisions, it's not my responsibility to bail them out.
Great video but I think you missed the sheer stupidity of the new PM and chancellor. They purposefully avoided the Office for Budget Responsibility giving financial projections and then lied about why the OBR didn't give a projection (ministers came out saying they couldn't get it ready in time - an MP has shown that this is simply a load of bollocks and the OBR were blocked from releasing a statement)
It's not stupidity, just callousness. They wanted pound to crash because they wanted to make money betting against it on the futures market. This is going to hapen over and over again while these people are in power, they purposefully make decisions and statements that hurt the economy and currency of the UK so that they get win big betting against it in the market
Say what you will about Johnson, he was nothing compared to the current government. Johnson made mistakes, sure, but these people are full-on ruthless psychopaths
The OBR probably had some particularly choice words to say about them and their plan, so it's no surprise they decided to gag them.
Sri Lanka might’ve had corruption, but this time the UK has one-upped them with blithering, blundering incompetence
I mean, all that political campaign funding has to be returned to their investors somehow, eh?
Should also be noted that this clusterfuck is just the start, and will be the prelude to massive cuts to public finances. It's trickle-down Reganomics on steroids, but without any of the resources of the USA!
Uk east midlands. Tinned semolina & tinned tapioca 2 months ago 85p, today £1.65, all tinned goods up a minimum of 25%, 2nd hand cars still inflated prices, bought 4 Zippo hand warmers for family presents, 2 at the old price of £27 and 2 at the new price of £34. New energy price rises today, good news is that I learnt to play "peaceful easy feeling" on guitar, and "moon river" on harmonica.
It might not be America, but that doesn't mean it doesn't matter much. I'm genuinely very concerned for the UK now that I know some of what's going on and honestly I was in shock to hear things had gotten this bad. Please, keep making videos like these.
The government needed a wake up call and it has had it. British conservatives have been deluded since Brexit. At some point reality had to show them up and that moment is now. The party's polling is awful and will not recover as they have betrayed their core base, middle class homeowners, only leaving the racists.
I personally hope that this is a warning to voters in America not to put know nothing idiots who want to be Ronald Reagan or Margarette Thatcher in charge of their country.
You should be in all fairness. Pound is tanked for budget reason of course but more because of socialist zombies labour taking 33 points lead.
Tbh, I haven't cared much about the Brits since 2016, once they decided to diminish themselves. I wouldn't be surprised if they're as significant as Spain on the world stage in 20 years.
A former great power and now...well, debt ridden and greatly weakened. Those poor citizens.
This American cares. We live in times of deep economic integration. And even if it doesn’t affect us, we should still care because any economic crisis will induce hardship on people. Not to mention, a learning lesson as well.
Nice video, but didn't touch on an important point - The bank of England may be forced to raise interest rates further to combat inflation caused by the stimulus. Vast amounts of people have variable rate mortgages. They are used to a bank of England base rate of
It almost seems intentional.
Will they though? Because America raised rates to try and force workforce participation (JP said so himself).
Some other countries have kept up to keep their currencies from devaluing too far against the dollar.
None of the (measured) inflation going on is really caused by stimulus. Rather, the rise in food and consumer good is due to the rise in shipping costs (resulting in higher fertilizer, and also food prices) and corporate gouging.
housing market fall = huge demand will be eliminated = no more inflation , housing crash is not the bad thing. they need to accept that
@@M.-.D exactly… That is what I am thinking… Those guys have too much high education to make such a rookie mistake , i think they did it on purpose to increase the interest rate to the moon. They needed an EXCUSE 🙂
Tough ti**ies...
Hi Richard, I'm from the UK and your video sums it up pretty well. A lot of people in the UK are on what we call "fixed rate" mortgages and when these expire people are going to get hit hard by the increased rates. The general sentiment in the UK is fear and anger at the moment.
To add to this: in UK people get fixed rate mortgages that usually last 2 or 5 years. (So if someone took a fixed 2 years a year ago, next year it's looking bad with the rate potentially jumping from 2 to 8%)
Can you explain what a fixed rate mortgage means in the UK? It sounds to me more like an adjustable rate. I'm from the US.
@@MrSupernova111 you can have the rate fixed for a given amount of years. After that it goes back to variable unless you fix it again at the new rate (assuming your ltv is less than 95-100%)
@@VirtualDarKness . Thank you so much for the response! Cheers!
Europe getting a taste of South American-like politicians lol
Give them a couple years and they'll have a lower GDP per capita than Ecuador lmao
South America? Sounds like Erduon-lite
Hello Gustavo, how was your day today
Can I just say something off topic here?
I really appreciate your nonsensationalist delivery and your lack of hyperbolic rhetoric.
I've been watching some other channels and it's just a breath of fresh air.
Thank you ❤️
Same, it's refreshing and has been something I wanted in media from all areas of interests. I just like listening to people like Richard, Patrick Boyle and even Coffeezilla talk about things.
Government: stimulates economy into inflation with QE and printing. Also Government: reacts to said inflation with price caps, subsidies, tax cuts and more QE
California and their inflation relief checks 🤦♂️🤦♂️🤦♂️🤦♂️
You have to absolutely dented to think that COVID stimulus caused the rise in energy prices in europe, or that inflation is caused by anything other than the currently high global shipping costs.
absolute shitshow
We've only seen inflation as a result of lack of production, more than year of stimulus and QE went by without any big inflation
@@tomlxyz inflation is mostly measured by cost of living, that's why food production problems are extremely siginificant, while people having more money does basically nothing, because everyone who is alive already had to pay for food and housing
I live in the UK and I cant for the life of me understand this government's course of actions. They seemed to have calmed the energy crisis, annual bills will be typically double then previous years but no where near the expected bills before action was taken. However now mortgage rates are increasing rapidly so that may cancel out any benefit that the energy price cap will make. Great video mate, I wish the media would explain things like you. Cheers
Good. Mortgages have been so cheap that stupid people have been getting them when they couldn't afford a minuscule interest increase. Most of those people shouldn't be living in the size of properties they are, and/or in the parts of town they are. Everyone needs a forced reality check to adjust themselves to the reality of their affordability and prospects. The market has been flattering people's egos and solipsism for far too long.
Well, eventually the house will be yours and you won't have to pay mortgage anymore. The energy you spent is gone. I guess it's better to say that it's better to pay more in a investment on your patrimony than paying for something that you will never own.
@@ankhlee6283 but the overpaying is on interest - you aren't paying down on the principal or in any way making progress towards a greater share of ownership.
It helps to understand that the musical chairs of scapegoat prime ministers really only exists as a distraction while the wealthy establishment loots and pillages the economy.
Or in other words, you're confused because you don't realize who the government _actually_ works for.
Switching to a functioning voting system instead of FPTP would basically fix this.
System is crashing. They just setting themselves up for System 2.0. We all rent and have to work the crap jobs.
Your explanation is very much appreciated. I for one, an American, am very interested in what is going on in the UK and Europe both economically and politically, and how they intertwine. Unfortunately, our media is very centrist with little in depth reporting of much in the international world. Never, do I hear about Mexico, Central or South America as well. For example, it is interesting that the Mexican peso is proving to be one of the strongest currencies against today's strengthening U.S. dollar, but no one bothers to report nor explain this phenomenon.
First person to ever call our media centrist lol
Fellow American here. That's true. But you also need to seek out the news you want to know about. I find that the American media does report on a lot of international news but you have to go to their website and read the articles. Complimenting American news media with other sources is a great idea though.
@@beckyweisfeld6977 . Sky news and France24 are also great.
The US media is not "centrist." Centered between what, a business party that likes guns and hates abortions and a business party that hates guns and likes abortions? There is no serious left wing in the USA, because everyone here has bought into the propaganda against socialism.
@@beckyweisfeld6977 The BBC is also pretty shitty news. It's just MSNBC with an extra 3 minute spot about how dumb and poor Africa is. AJ is as you say a decent viewpoint that will cover some things Western media prefers avoiding.
Student in London here, prices have risen so much I have become a ‘part-time vegetarian’. And that’s while having a bills included rental contract that for now has shielded me from insane energy prices.
Funding fixed obligations with leverage, who woulda figured anything could go wrong.
The thing is pensions use leverage because they have to, suppose you have £100 liabilities but the employer only gave you £50, to match the liabilities you have to use leverage. Also the risk management has no issue, usually they hold enough cash to sustain a 1 in 20yr event, but last week was 4 consecutive days of 1 in 20yr event, how could anyone be prepared for that. Unless employers are willing to give you the £100, there will always be risk with leverage.
@@dr.carrot756 using leverage on a (supposedly) safe asset doesn't sound that stupid
@@tomlxyz That’s what Lehman thought.
@@dr.carrot756 but interest rate on the rise meaning those govt bonds that pension fund hold will generate more cash flow, right ?
So in essence, the pension funds use these derivatives as a hedge to balance the (then)low yield govt bonds needed another backing?
@@dr.carrot756 "how could anyone be prepared" -> it was a deliberate choice to not be prepared. the employer could fully fund the pension but instead they choose to give the profits to management as bonuses and investors as returns.
Perhaps there is a concept similar to 2008 of "too big to fail" with the British pound and other aspects of the British economy. It could be that some investors didn't think these problems could become as severe as they are in an economy like Britain's.
my Occum's Razor take on this is they thought they'll get bailed out by US and EU. so yeah! You might be right...
When too big to fall face inflation 20%, question would be how far to fall
@@kalui96 No one is going to bail out the Brits from a self inflicted problem after they go to all the trouble of telling the EU to piss off in the first place. The USA bailing them out? LOL, the USA won't even bail out millions of Americans living in poverty, we couldn't give two shits about the Brits.
@First name Last name Every capitalist economy faces massive inflation and busts on the regular, and government capture by industry and the wealthy is a feature of capitalism, not a bug.
It's almost like dedicating society to the private accumulation of wealth is a misguided goal.
I always appreciate your non-cluttered viewpoint 🙂
Hello Mountain, how are you feeling today
@@Johnson-iz8yi Not too bad, how are you?
The UK pound is getting pounded.
real *hard*
soon 1£ = 1$
Yes
They’re going to Poundland.
Haha, going to Poundland, and will need 2 worthless pounds to buy anything 😂
I wonder if next week will be a video on Credit Suisse 🤔
They'd try to have Bagel suicided if they were exposed like that
juuuust kiddingg
Why would you say that? Quantitative tightening just started at the start of this year. Credit Suisse can't be seriously going down again.
Only once cramer tells you that CS is fine and is likely to be taken over. 😂
What happened with Credit Suisse?
Your explanation on the pension/gilt situation is probably the first that I’ve actually fully understood, thank you! I have watched lots of people explaining it but none have gone into the detail but kept it simple like you did 😂👏🏻
Thank you Plain Bagel, was also wondering why the pound hit record low despite the fiscal stimuli. Please keep covering issues like this in the future!
Excellent video. Thanks for explaining situation to someone from outside UK.
UK Gent here. I can tell you its bad in Britain. A lot of people are scared as our energy bills are still going to be climbing, the 'freeze' at £2500 is for average households and I am a frugal person but those averages are always wrong for me (same for friends and family). The NHS is stressed to breaking and there is growing, real concern they are going to try and privatize it . The inflation is making buying food difficult (an understatement) and our benefits system for people disabled, unable to find work or just not earning enough is being neglected while more and more people have to sign on for wage top up. Oh and lets not forget about fuel which, yes has come down but still runs at £1.60 per litre (about $8 per gallon) and we have very little public transport outside of the major cities so cars are the only way around. The anger at how we are being taken as fools and how powerless we are as a populace to stop them is coursing through everybody I meet. The rich and bankers are once again laughing as the rest of us starve, can't work and prepare to freeze either in the home or out of the street as we fail to mean our mortgage payments.
I have shame in admitting I voted for the conservative MP in my area. I am however bolstered that they think this whole thing is madness too but regardless, I'll be looking at other candidates from other parties for my next vote.
Just a note to anyone that reads this that doesn't quite understand the UK voting etc. its tricky; essentially we don't vote for the leader, we vote for our local area representative and they party they represent. The party with the most representatives across the country wins.
In Canada we also vote for our local MPs. We don’t vote for the party leader.
Here is the US our system is even more convoluted. We vote for electors at the state level who then vote for the president. That is why we got Trump instead of Hillary Clinton. She got about 3 million more votes then Trump, but lost the election. A majority of Americans voted against Trump and we got stuck with Trump for four years because of the electoral college.
Your vote for the Legislative being directly tied to your "vote" in the Executive is an awful concept, honestly.
Last election (Argentina) I voted one party for the executive (both national and local), a second party for Congress (national) and a third party for the Legislature (local). The three parties are similar in their broad views but have completely different priorities, being able to choose which policies/model is more relevant to me in each level and branch is great.
@@jamesodell3064 4 years that were very good for the US and the world until the pandemic. The founders knew what was up and it will be proven again.
@@jamesodell3064
Lol, an ^ ai persona complaining about our US Constitution yet again. What a shocker. The electoral college has been with us for good reason since our founding, and the folks on the left are angry that extremely populated and always very leftist LA, SF, and NYC don’t get to decide who’s president of the whole country, never allowing the conservative heartland to have a say as to who runs the white house. The electoral college is extremely important for a variety of reasons.
It’s no surprise to see when nations don’t have such a system, entire regions will get neglected, ignored, and underfunded - as we’ve seen happen in Australia.
You were born to do this. Great explanation and presentation.
Thanks for this. I found this a better explanation than I have heard any UK journalists on our news provide so far.
We don't have any journalists in the UK MSM just a load of well trained overpaid parrot's.
a very professional (an very sympathetic) analysis
Good explanation. I had been watching this through British media sources, and none of them explained the pension liquidity side of this nearly as well as you have.
Hello 👋
Ed Hrafnskald, how was your day today
Thank you for your in-depth explanation! You covered all bases brilliantly.
Hello Farid, how was your day today
most thorough and understandable coverage of this I've seen so far - thank you!
Hello Jordan, how are you feeling today
14:20 there is also the fact that the implicit guarantee of solvency by the government allows these large institutions to engage in riskier behavior - essentially privatizing their profits and socializing their losses. Not great for the long term, and rather anticompetitive given that smaller firms can't compete with that guarantee.
We're seeing a repeat of 2008 in many ways; kicking the can down the road. You can thank MMT for this insane instability.....
corporatism
@@seabreeze4559 socialism...........
@@curtgomes Corporatism is MMT. It is literally the economic theory central to Fascist ideology. It is also a large part of why Mussolini saw the US as being so similar to Italy (minus the elections, which he saw as naïve). However, Fascism is itself some derivative of socialism, in the sense that its proponents and chief thinkers were once socialists.
As a supporter from the UK, I really appreciate this piece of content
This was a great and easy to understand explanation. I watched much about it and your summary is the simplest to-the-point one. Love learning from you. ❤️❤️
really concise and perfect, thank you for this, I finally got it.
UK citizen here and tres unimpressed. I'm not a finance person, just show a general interest but I can't work out how the energy subsidy is meant to help, seems to be a supply issue and pricing is how we fix that (as cold as I'll be, facts are facts) but now we can't calculate our costs due to this intervention, effectively decoupling our economy from reality. Then obviously we have the mini budget fighting the BoE trying to curb inflation (yes causes are global and we have limited impact, but everything is a nail when you only have a hammer) so I'm utterly perplexed.
It's not a general supply issue. The energy companies have raised their prices to match the market because it's a free market. It's faster to subsidize right now rather than take the long and complicated legal proceedings to force the companies to change this and that could set presidents that affect broader markets and international confidence in investing in a country. There is only a supply issue from Russia which is a relatively small part of British energy supply. but because that has forced global energy prices to rise on the wholesale market, other sources have increased their prices even though their supplies aren't affected and have in fact been increased to meet the difference. It's the downside to very free markets and takes a while to address the foundations (like nationalisation, which has other geo-legal impacts). Your pensions are invested in these energy companies that have raised prices to meet demand, if they are forced to reduce their prices everyone invested in them would suffer - your pensions. So your pensions would lose even more money than has happened so far. And listed companies have a legal/regulatory/moral obligation to make profits for their shareholders when possible. There are measures that could be taken but those are draconian laws that come onto play during national emergencies and wars etc.
I’m from the uk I’m 22 I wasn’t old enough to vote in the brexit referendum but if I was I think I and a lot of other young people would vote remain. Since this point British politics has been on a downward spiral of incompetent conservative leaders handing off to one another against essentially no opposition. There has been no stability from any leadership bar Boris Johnson who as the bafoon he has always been tripped over his own laces. This all started from a hugely under qualified and incompetent Tory leader in David Cameron, and has been cemented by ever other Tory leader that followed, the fact that the country still see this party as the best option speaks volumes about the opposition
Nope, I would have voted leave
Excellent description, thank you
Excellent video, Richard! Appreciate all your work on UA-cam
So excited to watch this! I’m an American living in the UK and have been trying to find a good explanation.
Hello 👋
Cedonia, how was your day today
As someone in the UK: I'm very glad I shifted around my pension before the funds started to get margin called. About 15% was in these gilts by default, even though I'm only 26. I've now gone 85% ex-UK and very glad to have done so. Did something similar a year or two ago with my other pension as well.
In terms of the political situation, there have been some 'enough is enough' protests today across the country. Nothing major, but definitely a sign of what's to come. When interest rates eventually go up and people's mortgages get more expensive, I think we are going to see a lot of angry protests, maybe even riots. General election is due in 2 years but can imagine another one being called much sooner than that. Truss aint going to last long.
That’s Fuc$ up!! We the people need to take our rights back and do away with these governments and the way that they fucking spend and causing us to lose our homes and peoples lives are lost damn people come on let’s take this thing back over!!💯👍
As an American I have a couple of questions. Does your pension allow you to choose investments? Also, do you know what the typical asset allocation for UK pensions look like? Pensions in the US usually have a guaranteed fixed income during retirement so I don't see how making asset allocation choices make any difference to the retiree. Also, I believe most US pensions are funded by PE but I could be wrong on that. Do the majority of mortgages in the UK have adjustable rates? In the US most mortgages have fixed rates. Thanks!
@@MrSupernova111 We used to have defined benefit (final salary) pensions, however they've mostly gone the way of the dodo unless you work in the public sector (teaching, armed forces, civil service etc) and even there I believe it's mostly being phased out. The vast majority of people are now on what they call a Defined Contribution pension, which I believe employers have to offer by law and enroll you automatically after 3 months of employment.
These vary massively in quality. For example, with my pension at my small employer, I sacrifice about 2% of my income, and they give me something like 3% back, so in effect I get 5% of my earnings in a pension each month. My wife's employer (a big bank) are able to offer a 10% pension which she doesn't even need to contribute to. I've seen civil servants have 18% pensions advertised as well.
This contributed money then goes into your "pension pot", which is what you'll use to live off at retirement. If you get stuck with a shitty pension like mine forever and don't actively invest in other ways, that means you'll never retire because it simply wouldn't be enough to live off. Because people also don't know a lick about investing, unless they're in property there's probably a 70-80% chance they don't know that their pension has barely even kept up with inflation. I believe many people are going to come to this realisation over the next 30 years and younger people like me are getting much more clued up than our parents.
Nevertheless, you can largely do with your pension pot as you please, within limits. Your provider will have certain asset managers that you can choose to invest with (including themselves), or you can leave it as default. The vast majority of people never touch their pension.
The problem with this is that someone in their 20s (like me), ends up being invested in shit that is completely inappropriate for their age and risk appetite. For example, about 15% of my pension was in gilts/bonds until I changed it manually recently. As mentioned earlier, most people will not know to do this though and will be unknowingly significantly invested in bonds and the UK market.
@@MrSupernova111 In terms of mortgages - we do not have 30 year fixed rates like I believe you guys do over there. The most you can get is about 5 years at a fixed rate from what I know, and the rest of it will be variable, dependent on the interest rates set by the BoE. If you don't remortgage once you're fixed rate has ended, you're at the whim of the interest rates. Why anyone would stay on a variable rate is beyond me, but I believe a significant amount of people stay on them for long periods of time for one reason or another.
@@tenaciousdean6179 . Your responses were incredibly insightful! In the US when we talk about pensions we primarily talk about define benefit plans and this was part of my confusion. You're correct that in the US 30 year fix rate mortgages are the norm. Thank you so much for your insightful responses! Cheers!
Dude you’re the best!! Thank you for your work!
Great vdo. U explained a Lil complex issue in a very simple and understandable way. Pls continue making such vdos on complex financial issues.
So from someone who lives in the UK. You need to understand Lizz Truss was elected as prime minister from her party members (who are mostly the most hard-core, richest 1% of the country), which represents less than 1% of the UK population. They elected her because they wanted a sizeable tax cut (which the other candidate [former chancellor] said no to). It's also worth noting the current Prime Minister has less than 1/3 of her MP's backing her, (most of them supported the other candidate, the former chancellor).
Now it's gone to hell. The plan hasn't worked, Brexit didn't work and the entire country is hanging on by a thread on the hopes that cooler heads will prevail.
The other issue is the Government has unlimited downside from gas prices this winter (and yes the UK is cold and miserable in the winter). Instead of partially funding this downside with taxes on energy companies, they've decided to just borrow money to fill in the gap (yes that's risky, hence the markets reaction).
Housing represents around 50% of UK wealth (most of which is leveraged via mortgages), interest rates are now going way higher than expected, don't need to explain why this is a problem. Conservative/Tory support from the UK public has dropped off the edge off a cliff since the announcement nationwide too.
Basically, we're fucked unless a U turn happens soon, which if Lizz Truss does, will probably cause a no confidence vote and a snap election (so the Government will probably double down), meaning we're probably going to carry on.
To the international markets: Punish our Government. They're useless.
The removal of the tax bracket for high income definitely makes no sense... The changes in income tax barely/don't affect the groups that need help. Very sad. I consider myself lucky to be in a financially reasonable position
Truss wanted to go full reaganomics. They said the tax cuts for the rich would trickle down to the poor HAHAHA
It's typical trickle down economics (also know as voodoo economics, a term coined by George Bush Sr.). The idea is that if you give the richest people in the society more money it boosts growth and everyone benefits.
In reality it doesn't actually work that way, of course. When a poor person gets an extra dollar he uses it. When a rich person gets a dollar he saves it. This is self-evident, yet people still continue pretending as if trickle down actually worked
It just gives the lower-end richer people nearer the tax cut-off point more chances to save or pay off their household debts. They are just going to save, not spend. The other tax cuts aren't enough to let those less well off to do the same. They should have kept the 45%, perhaps raise the salary threshold a bit but raise the thresholds for everyone too.
@@anthonybyrne2262 this does work in some cases for example high level of unemployment - you want businesses to grow, thrive, multiply so they create jobs. UK unemployment rate at the minute is quite low, so there is no point of tax cut for the high earners.
@@ekaterinastaneva9922 Trickle down economics works only sometimes in theory and very rarely in practice. More often than not the money gets pocketed, nothing changes and the govt bleeds cash.
I am from UK, a big fan of your channel. You simply explains complicated concepts like Bonds. Keep it up and pls cover UK time to time.
thanks for the vid. been hearing about something happening to the uk but it was all just confusing stuff, this was a pretty good, understandable explanation of it.
Inflation strikes me more and more as a very course measure of economic health. Because the real problem with inflation is usually unequal inflation. In this instance energy prices. I think it's so popular to use because targeted inflation reduction actually requires public policy(politics) to stabilize prices as opposed to just giving the power to banks to effectively make investment decisions for private interests as opposed to public good. Nice relatively straight forward explanation.
Boris Johnson actually somehow survived the whole Party-gate saga. His undoing was putting someone accused of sexual misconduct in a position of authority within the Conservative party. That triggered a big part of his cabinet to resign, including his chancellor, Rishi Sunak. Rishi then ran for leader against Truss, and warned about how dangerous he policies were, but the members of the Conservative party wouldn't vote for him because a lot of them liked Boris and Rishi was the knife-wielder, so to speak, who killed the premiership. Our whole country is a mess right now.
Join the club... we have Dementia Joe to deal with!
UK seemed too aggressive on the lockdowns which did not help. Party gate was a big nothingburger. I won't defend the conservatives, who seem weak as a party and can't close ranks to move an agenda forward.
Hello 👋
Joseph, how was your day today
Great video as always! Could you please cover the credit suisse situation as well?
Richard your videos are really important and valuable. Would you consider a quick follow up to explain why (or why not) something similar could happen in the US or Canada?
If you want to know how it is to live in turkey: imagine this happening every month for the last 4 years 😅
I'd start only accepting payments in gold and silver and maybe turkish delight. 😛
@@Elic205 yeah it makes sense 🤣. Soom we're gonna have to go back to the times before lydians invented money and trade items instead of a currency 🤣
@@pragmatiste ill take the goats and shirkels
If you bought £150 bn of offshore wind it could power the uk about 3 times over.
The uk uses ~40Gw and wind power costs about £1 per watt for an installation that will last 25 years.
The price cap policy is crazy.
True, but wind power is somewhat unstable, and maintaining offshore facilities is obviously not ideal (we already do it for oil rigs though, so I imagine the maintenance would be feasible at scale). I think a mixture of wind, hydro (for boosting the supply when the output from the wind drops, as hydro throughput can be controlled easily) and nuclear power (for longer term changes in wind output, e.g. seasonal shifts) would be ideal.
you have viewers from Europe, a lot of them! :D keep it up cause its extremally helpful! Thanks!
Great explanation on a topic that not many understand!
As a UK citizen, it feels like the Bank of England's actions here are reiterating that if you are a big organisation then they will protect you from your own bad decisions even at the expense of the general population (by restarting QE)
You know the pension were failing because of government's action, which is separate from BoE, right?
And you know failed pension means a lot of ordinary people who paid part of their wages for pension will see that money vanished, right?
One would think people who watch Plain Bagel videos would already be somewhat informed on the subject
@@matthewlvk7366 pension companies were failing because of their own investment decisions. They relied on the government not creating substantial changes to the bond market (which is a pretty silly thing to rely on). While the government actions did lead to the chaos, it's not fair to hold the government responsible for the investment decisions of financial organisations.
And yes there are consequences if the bank of England lets these companies fail so I agree with your point. But there are also consequences to continually bailing them out. It allows them to basically do whatever the hell they want as they then don't have to worry about the consequences of their actions since the BoE bails them out anyway.
Small correction: Boris wasn't ousted because of Partygate. He was ousted because he promoted a minister to higher positions in government despite knowing of sexual misconduct claims against said minister, and then lied about it and - perhaps more pertinently - sent his MPs out to spread the lie for him without their knowledge.
It was more of a combination of those actions really
i bet he is glad its coming down on someone else
@@kegal It wasn't though. The public and some MPs were outraged by Partygate, but he survived a vote of no confidence by his own MPs on that matter. He had jumped from scandal to scandal through his entire term in office, with Partygate being just the biggest, but he survived all of them. It was the fact that he made his MPs and ministers look bad on TV by lying to them and having them lie for him that prompted them to oust him.
@@Chris-lr2qb agree to disagree
He'd been a dead man walking for nearly a year with the scandals and U-turns piling up but the Tories unwilling to turf him because they don't have anyone to replace him with. They still didn't have anyone to replace him with in August but they had to turf him anyway when it was clear his scandals were causing reputational long-term damage to the wider Tory party.
Unfortunately they still didn't have anyone to replace him who would be an electoral asset like he was, so the next PM was going to be weaker and more beholden to the ERG, who are an extreme right-wing faction of an already very right-wing party, but even worse had minimal loyalty to the party and were perfectly willing to blow it up to get their way. Liz Truss was more willing to court the ERG and be their pawn so she was voted into the final round of voting with Rishi Sunak, a man with many problems of his own but most damningly a very un-Prime Ministerial skin tone, so Truss was voted PM by the wider Tory party. She then started implementing the ERG's policies - which you could describe as trickle-down only without even the suggestion that any money was going to find its way to anyone not already obscenely wealthy (trickle-up?) - and the pound crashed.
Thanks for the coverage
Thank you so much for this information.
I love how the free market just did them over it is beyond hilarious. Nice video. Hopefully the pension situation can be sorted quickly and the politicians tarred and feathered.
Currently the politicians in question are polling at figures suggesting they'll lose the next general election and possibly not even be the main opposition (if two other parties decide to co-op, which I believe the party in question have literally always been in power or in opposition, sadly the election isn't for another 2 years so things may change by then but I do think they'll 100% lose just how badly may change)
The free market did them over? This whole thing has been caused by money printing and government spending, which have nothing to do with the free market. All the free market has done is refuse to buy a crap product, like UK government bonds. Blaming the free market for this is like blaming your neighbour for your personal bankruptcy because he refused to buy your 1960s black-and-white telly from you after your gambling holiday in Las Vegas.
Correction ! "Incentivise people to work" is what was said in parliament. Not growth.
You'd be surprised how many people equate the two
Good analysis. Thank you
Love this Explanation. Was easy to follow
Not a super crucial point, but I will still make it - the winter bills help package could have been way more effective. There is no point to give a flat 400 pounds per household disregarding their disposable income. Mang households who need more will not get it and many households who can afford it will just get some free money they will put into savings
Placing a price cap on heating bills is honestly one of the worst solutions I've ever heard to any problem facing a country. It simultaneously increases supply pressures while subsidizing wealthy households who don't need financial support. Only a complete idiot would propose it. So glad I don't live in the UK. The conservative party seems hell bent on tying to a noose on the country's economy.
@@treyshaffer one thing I didn't get is that will happen to the rest of the heating bills. If the real bill is 3.5k but the price cap is 2.5k, is the government going to subsidise the remaining thousand pound? And if yes then it should definitely be introduced, like the relief package, for the vulnerable part of the population only.
As someone who lives in the UK, I can definitely say my investments have felt it big time and cash doesn’t go far at the moment…
Just ignore it. Britain is a productive country.
It all started with Brexit…
@@axelnils sign you don't know what the f*** yer talking about
Thank you for explaining this
The maximum weekly state pension is £141 in the UK, £507 in Germany, £304 in France, and £513 in Spain.
Richard’s worrying dry laugh adds so much flavor to this whole mess 😅
The year has not been crappy! It has been '...very interesting'.
Appreciate the quality content
hi ! amazing video; thanks for the info; greetings from Argentina; if you could ever make a video on the basics on how the bond market works and the most common implications of its changes (market price, interest rates, etc.), that would be awesome !
Central banks be like: "I've come here to cut rates and print money...and I'm all out of rate cuts."
Even the most secure investments (bonds) can drop by a significant amount
Excellent video. Thank you.
Thanks brother I appreciate your time 🫡
As people mentioned in the comments, this 'mini budget' was blocked from being costed by the Office for budget responsibility (set up in 2012 to independently verify the costing of proposed budgets). This is a core factor why the market is freaking out.
The government is already looking to cut costs via 'inefficacies' to fund this nonsense and when placed in the context of the strikes this summer by the RMT (rail network union) and other public services, for pay rises in line with inflation among other things, referred to by the media as the 'summer of discontent'.
As someone in the UK, I'm worried
You folks are enjoying the result of capitalism after having lost your empire. The only way for the rich to continue buying new yachts is for them to colonize the bank accounts of the lower classes. I'd say that you all should probably stop voting for Tories, but it does turn out that propaganda is some of the most reliable return on the dollar out there.
While its crystal ball territory to say this. I think Sunak was the better choice for cooling off the market, he did talk big on not kicking the debt burden down the road. While Truss did say she would stimulate the economy if elected. We are no reaping the 'reward' of that
Sunak said this would happen if Dizzy Lizzy went ahead with the mini budget
Plain Bagel + Patrick Boyle = my weekly financial news summary.
Australian here, we’re a very Lowkey country in terms of the entire economy at the moment, all the focus is on America, UK, Europe, Russia, China, Japan & somewhat India. I’m very appreciative of videos like this since most finance channels are based in the US so they only usually cover US topics, but this type of info on other countries are extremely important. I only know 1 person in my entire acquaintance group that is even remotely aware of what’s going on in the global economy, perhaps ignorance is bliss? Regardless, please keep covering these topics Richard
Great video as always. Boris Johnson wasn’t really ousted for PartyGate, although that was a factor. It was mainly because of his appointment of Chris Pincher as deputy chief whip.
He should be in jail for mishandling pandemic and spreading lies about herd immunity, when nothing was known.
He basically thought one of his senior officials being accused of sexually assaulting people was funny.
Very interesting video, Richard! At times maybe a little hard for me to grasp but nonetheless educating. If I may ask could you please make a video about the bad side of price caps? For example the price caps that have been set on energy or fuel prices all around Europe? I think that many people actually forget that their implementation may have a positive impact on their wallets but not so much on the greater economy as everything has it's pros and cons. Thank you
Hello Alexa, how are you feeling today
Thanks Mr. Bagel, I'm from the UK and didn't really understand the economics of these new government changes, so this was really helpful.
In terms of my thoughts, I think trying to brute force an increase in demand while there are global supply-side issues is not the best idea, and I can't help think that these changes were more politically rather than economically motivated, given Truss just came into power and wanted to make a statement. As for living costs, energy prices (and fuel) are very bad in the uk at the moment. We had a hot summer so I think we haven't felt the full effect of this yet, it will be a very difficult winter economically especially for some people.
It also feels like there is little economic expertise behind our government's decisions (in general not just now). Surely the government can just hire economists to give some idea of what their planned reforms are going to result in?
Thank you for your work!
Please increase your volume 😢
Great video. Greed is the pandemic.
as Timothy said.
I've invested a lot more in Danish assets. I feel security and stability is a good factor to consider these days. All my Danish stocks are in green for this year. Which can't be said for the rest of my portfolio.
Yolo into lurpak
I feel like it has todo with the kind of people there
Thanks for the excellent explanation. The measure taken by the BOE are timely and essential but temporary , would long term gilts be illiquid again after that ?
Congratulations on your subscribers. I remember you having like only 20k when you started out
Wow this is insane with no cheese on bagel…
FTSE250 - the midcap index - is a better indicator of the UK. It has really taken a pounding.
Fantastic video Richard, thanks a lot.
Thanks 👍🏼
Im from Slovenia and I heard this "argument" about "Europe bad, world go bad" a couple times this week
I would just like to remind everybody that we had a recession during eurozone crisis and the rest of the world barely noticed
UK is even smaller then €-zone... and US has been in a recession from the start of the year
We have war in Ukraine and El Salvador, which do you think monkey wrenched global economics?
Investing in EX-US market looks like a massive L for the coming decade 💀
Was a massive L for the last decade too 😅
great content thanks
Thanks for covering this, i'm about to move there & wanted a proper breakdown of this whole situation. Hopefully liz truss & kwasi kwarteng do a u-turn on their policies & get thrown out soon
I'm a British international student in the US. One of my parents supports me in GBP the other in Euros. Both currencies have been annihilated this year, making America really expensive. As far as politics are concerned, I usually always support tax cuts but it might not be the time for them.
“I always support tax cuts” what a ridiculous statement.
@@TheUndulyNoted ?? yeah taking money from people is soo good
@@ZotyLisu Considerimg people require the government to do stuff, yeah, it is.
@@Hyperpandas of course, but governments don't have to be big and involved in everything. I'm not saying it's bad, but not even considering the other option is.. weird
@@ZotyLisu Isn't someone saying they usually always support tax cuts as silly as someone saying they usually always support tax increases? It's up to a society to decide the role they want government to have in their lives, and then pay accordingly.
Can’t wait to leave the UK
You've been saying that for years, darling. Get on with it!
Very good video, thanks.
Thanks!