PREVIEW： Brokenomics ｜ Anglosphere Economy Update
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Summary
In this episode of Brokonomics, I discuss the impact of the UK Budget, Trump's win, and the outlook for investments. I also talk about Bitcoin, Tesla and the future of Bitcoin in the long-term.
Transcript
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Hello and welcome to Brokonomics. Now in this episode I wanted to give you an update on a
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whole bunch of things I've been thinking about and I was wondering if I could name one particular
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topic on it. I think it's going to be the political situation and what it's doing to the economic
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situation. Actually when I started making a list of things that I wanted to give you in an update
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I got quite a lot. I definitely want to cover the UK budget. I want to cover Trump's win and what
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that is doing to markets and the outlook for investments. I wanted to come on to things like
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things that have really done well from the Trump trades such as Tesla and Bitcoin. I think Bitcoin
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as we've talked about in previous episodes is catching the liquidity cycle which I've talked
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about a lot before but I'll try and recap some of that and the cycle more broadly. I think that a
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lot of the Tesla and the Bitcoin stuff if I went into that and I did it properly it's going to take
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maybe a bit too long so I might want to do this over two episodes. So maybe this episode can be
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about really focusing on the political stuff in the UK and the US. Well actually it's going to be the
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whole Western world. I mean it's the same problem set that they've got in all of them. Europe is
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not doing well but I mean it's the whole Western world. So let's get into those things and if I need
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to do it as two episodes to really flesh out some of those latter ideas I will do so. But let's start
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off we're talking about the UK budget. The Labour Party recently won the election. Not really by
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virtue of the fact that they were popular and people wanted them. They won because the Tories
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were so completely awful and had betrayed everybody and had run immigration up to in excess of a million
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new arrivals a year. And these were not high quality individuals they were bringing in. It was not
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you know the global elite. It was not the top one percent in IQ. It was basically just anybody who
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wanted to come here for any reason. And the people most motivated to come here are the people who
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want to access the welfare system because it's easier than being in whatever Astan and not having
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any money. So the floodgates were opened and we have had a crippling effect on the welfare budget.
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60% of social housing in London is occupied by people who were not born here. You know the Tories
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they just completely lost the plot. And Dominic Cummings who was the Chief of Staff to Boris Johnson
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he had a recent exchange with Maven Politics a friend of mine. And Maven asked Cummings well why did
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you open the floodgates? And his response was and he said this is a literal quote from Boris Johnson
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open the floodgates change the point system so that everybody gets in because I want the FT to like me.
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which is well anyways the Tories have to be destroyed for their I mean they're not they're
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not a right-wing party. They're not fiscally responsible. I mean they're just they're just
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awful. They had to go. So anyway Labour won. They won with 15% of the eligible voters. I say eligible
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voters because of course more people are eligible to vote than actually get on the electoral register.
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a lot of people just don't even bother doing that. They won with 20% of the
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there was no way of spinning this to say that they are popular in any way. And actually since
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winning office they have set record unpopularity. Keir Starmer has set record unpopularity.
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And I think they know quite how unpopular they are. They've picked a fight with Elon Musk who
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is constantly coming after them. Good. So I don't think that they do not seem to be looking to rescue
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their popularity. In fact they've just seemed to have decided well we're just going to do all the
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all the crazy socialist shit that we've ever wanted to do. So I was not optimistic coming into the budget
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of a couple of weeks ago. I do have to say it could have been worse.
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It could have been considerably better but it could have been worse. I was worried about them
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going after ISIS. ISIS for those of you who are not in the UK is our tax efficient
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investment tax wrapper essentially. You can put money into an ISA. You can put taxed money
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into an ISA. And when it grows you don't pay any tax on it. So anything that you sell out of it will
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have no capital gains. And any income you take from it will not have any income tax on it. So that is
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the primary method of which people in the UK save. And if you're in another western country you will have
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something similar I'm sure. There was a concern that they were going to go after that. If they did
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that and that was the big rumor they were going to go after it it would have completely disincentivized
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savings to the point where I don't believe there would have been any point in somebody like me
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staying in the UK. I mean that would have been an instant okay I've got to go somewhere. Probably
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America I'd imagine because now that Trump's in he may be fixing some of the things. So
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on that respect it could have been worse but there was a lot of negative things in there. They did raise
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oh actually I should also mention this there's two main ways that you can save in the UK. One is the
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ISA which your money is taxed it goes in the ISA it becomes tax-free. The other one is you can
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earn money and then take the tax off of it so you can put untaxed money into a pension pot
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but then you're taxed on the other side. And actually we ought to come back to that at some
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point and do a deeper dive on pensions and the difference between those two strategies. I much
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prefer ISAs because I believe that money that I put into a tax efficient wrapper I will make a lot
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more upside through investing it and therefore I'm not concerned about saving the 30 40 50 whatever
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percent on the upfront I'm more interested in saving the gains that I make as I come along
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with that. Anyway okay so but they did increase capital gains tax which is a particular focus across
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the western world at the moment because basically western governments they've run out of money
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they want to tax more they do not want to cut spending. So across the world we're seeing
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capital gains tax go up. Camilla Harris quite famously was looking at taxing unrealized gains
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which was part of her loss. Now that would have been completely mental if she'd done that because
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that means that even if you hadn't sold the asset you just held on to it you'd be taxed on the upside
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which it's it is just blatant theft. I mean so you're taking all that investment risk for making
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an investment and then even if you even if you don't sell it you still get taxed on it but anything
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you lose you know you don't get you don't get tax relief on unrealized losses so it would have just
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completely killed the incentive to invest in America but but fortunately it didn't come to that but
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in the UK they did increase the rates here on both short-term capital gains things that you've only
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held for less than five years and long-term capital gains and I think you've held for longer than that.
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Capital gains is a really bad tax. Why is it because from their point of view it's a great tax
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because it only affects what they consider rich people
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and you can exempt your primary residence so the idea is that not too many people should pay it.
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The reason it's a really bad tax is because what it causes is capital immobility. It encourages
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investors to keep their money in one place rather than move it around to wherever
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the highest return can be gained and that's important because capital should flow to the
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things that are succeeding and flow away from things that are failing. It keeps economies dynamic
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if there is that cycle of capital and that's really what financial markets are supposed to do.
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They're supposed to continually cycle money away from things that are not productive to things that
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are productive and therefore you get productivity increases.
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Europe, the UK and increasingly the United States as well has an increasingly poor track record of
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achieving this and therefore productivity rates over time has been coming down and therefore the
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economy is not growing and therefore there is less to tax in the regular way so they have to start
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inventing new creative ways of taxing people but by doing this they're just ensuring that future
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productivity rates are going to be lower and therefore the problem for future governments is going to be
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higher leading to more and more aggressive taxation which again suppresses the growth in the economy.
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So it could have been worse but they're moving strongly in the wrong direction.
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There's the particularly pernicious element of this is what they did to the farmers which I want to
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come back to in a minute because that's probably the thing that deserves the most focus.
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But before I get to that I just want to point out that the Labour government is full of people who have
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never run a business. There's not a single person in that government who's ever open and run a business.
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The problem that we've got is that there is no incentive to open a business anymore.
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It is made incredibly difficult for you through a bevy of taxes and regulations. If you try and do
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anything the system of regulations your local council will put so many roadblocks in your way
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that you can get stuff done eventually but it's incredibly painful. You spend a lot of your time
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dealing with the bureaucracy and the regulations rather than doing something productive.
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And so invariably people who do open businesses have an extremely high failure rate over and above the
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fact that any new business has a high failure rate anyway. And those people like me I mean I'm the sort of
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person who absolutely should be opening a business if this was a normal functioning economy. I've got a
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good set of skills. I've got plenty of capital behind me. I'm still young enough that I could throw a lot
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of energy into something. But I know how this system works and I know that it's completely unattractive and completely
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unviable. And I basically made the calculation almost 10 years ago. Well not quite 10 years ago but basically when I was getting ready
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for retirement in my late 30s and I ran this calculation thought yeah I could I should open a business now but it's going to be made too
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difficult. So instead what I will do is I will I will just invest money instead and I will invest it in a business in a big business
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business which can afford lawyers and compliance teams and has has achieved sufficient scale
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that the percentage of regulatory and business hassles is small enough compared to the percentage of
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productive time and energy that they can throw at something that they can actually grow.
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Because this is what governments have done. They've made it basically unviable for small businesses.
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And so therefore I put my capital towards investing in large businesses. It turned out to be exactly the right thing
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for me because those assets have grown very nicely indeed and I'll come on and talk about some of those
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when we get further into this segment and about how it's happened.
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But it's not the right thing for the country because that business and I don't know if that theoretical business that I would have
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opened would have been successful but I didn't even try because of the the business environment in the
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in the western world is is simply too unattractive to even attempt it. So yeah Labour and the Tories
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before they're barking up the wrong tree there has to be a reset on this unless productivity levels are going to
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continue to continue to continue to be depressed or even continue to decline like they have been
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and Europe simply becomes irrelevant and it will be overtaken.
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Europe thinks of itself as a rich first world set of countries but they are they are poisoning themselves
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with excessive taxation government and regulation. So let's talk about the farmers.
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Farming you know especially in an old country like this is something that is passed down the generations.
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You know we have farmers who have been working the same bit of land
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as their fathers and their fathers and their fathers and you know you can go back a dozen or more generations.
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The land is not some tradable asset for them. It's not something they're speculating on. It's not something that they are
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but because governments are so desperate for money
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Labour decided that they're going to start taxing farmland.
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Okay what's happened to land itself? Well that is downstream of the broader set of problems that
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the governments are having now and I've talked about this in economics many times but let's recap
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basically it's all downstream of a demographic issue. The baby boomers was a large generation
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and when baby boomers were coming up they wrote a set of rules that were very generous to their parents
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the greatest generation the people who fought in the war lots more pensions
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uh welfare and other things as well a whole bunch of social services but pensions is the big one
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and they assumed it was fine because there was lots of working people and relatively few
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The baby boomers then did not have a proportionally large generation following them
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in order for the maths to continue to work because the maths they set up with their government programs
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only works so the population increases by this roughly the same amount as the increase from the
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greatest generation to the baby boomers. They had the millennial generation. Millennial generation is
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a large generation it's slightly larger than the baby boomers but as a percentage increase it is
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it is not large um there's no that that growth rate was not maintained so what started happening is in
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2016 2017 the baby boomers started retiring um at a pace this is still going on um the really big
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baby boomer retirement because there was with the baby boom generation there was there was two big
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booms and the really big one is coming up and that that's going to be upon us shortly so the proportion
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of retired people is significantly higher than the system was set up to anticipate
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which means the governments are running deficits now governments run deficits in the past where they
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are spending more than they earn but normally large deficits is only a thing that happens if you're in
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the middle of fighting a world war or there's some sort of catastrophe going on historically they've not
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run deficits at a time where unemployment is low when you're not at war uh where inflation is as it
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currently technically isn't we come on to talk about this relatively low
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and so permanent deficits has become a regular feature of the western world
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japan got there first they got there about 15 years earlier than us uh for the simple reason
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that the demographic spike that i'm talking about across the western world um is also happening in
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japan but it's happening 15 years earlier because they they are on a slightly different cycle for
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for different reasons their boom came earlier than ours did um that has happened more in the um
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um latter stages of the silent generation uh and they have been floundering ever since but now western
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governments um you know uh western yeah they they have been catching the same issue they they're running
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large deficits and these are structural deficits they can't shift them okay so what do you do well one
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element like i say is raising taxes and we've been talking about that second element
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is if there's a gap they simply monetize it um short version they they print a lot of money
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whenever they need to fund that gap between what they're bringing in and what they're sending out
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and we talked about this on brokonomics many times so i won't go into too much detail but essentially
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the money that they're creating debases the value of all the existing money out there
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so money becomes worth less over time and things that are not being washed out through this debasement
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process are becoming worth more and we are certainly in the stage of the cycle at the moment where
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people understand that you need to get out of simply holding money you don't just want a large bank
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account you need to do something with it you need to get it into something which the government cannot
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print a major beneficiary of that in terms of value would be land because of course we are not going
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to get any more land in the uk so the amount is fixed so therefore the value of the land starts to rise
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quite significantly capital gains tax does not take into account inflation so capital gains tax is evil
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anyway because you know things like you know the value of your house if it gets beyond a certain
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threshold or your second house or your other asset whatever your set of assets is if they can't be printed
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they are going to go up over time and they might even go up relatively nicely say 14 a year
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but you know somewhere between 14 15 16 percent that's the rate that the money is being debased
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every year so the value of these things can go up and you're not actually getting any richer in terms
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of what you can buy with it it's simply that these assets are repricing to the amount of money
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um debasement that is occurring okay so you apply that to land land is getting significantly more
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valuable because of this debasement effect the land itself is not becoming more valuable
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um well i suppose it is to a small extent in that the population is growing and therefore the share of
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land adjusts because of that but that's not really what's driving here it's simply the debasement effect
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it is simply a part of what they need to use in order to carry on the farming and for this reason
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farmland had always been exempt from capital gains as a recognition of you know this was this
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is not something they're speculating on it's it's it's the farm it's very basic
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but labour doesn't see it like that they just see a bunch of rich people
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and from their perspective these people are greedy because they're not paying their fair share
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and we've seen this on twitter or x um ever since labour did this a load of spiteful lefties
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are cock a hoop about this because they're saying all these rich farmers are going to be you know made
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to pay their fair share and they've been hoarding all this wealth well it's not wealth it's land
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it's just a basement has made it the cash value of that land go up
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a lot of these some of these farmers are earning good money and they're
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and they're traditionally rich in the sense that they have liquid assets um they have liquid wealth but
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a lot of them are not they're really struggling they just happen to be rich in terms of the land
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if they were to sell it they never asked for this so now when the older generation passes
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the younger generation going to find themselves where they have no increase in liquid wealth they
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haven't got a you know huge bank account something because that's how the left thinks about wealth they
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think it is this huge stock of um you know you know that they think of scrooge mcduck
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diving into a vault full of gold coins they can't perceive wealth in any other way because they're
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they're stupid smaller farms are going to get hit with these enormous um inheritance tax bills
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and the only way they're going to be able to pay is by selling off a chunk of land
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to pay the tax and a lot of them are farmers that are only just viable as they are because farming has
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been attacked by successive governments so they're going to sell off a block of land and the farm
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may now may now be unviable it is completely wrong um
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the left doesn't care a senior labor advisor went on i think it was gb news and he was incredibly
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spiteful towards farmers he was saying well we just don't need them we don't need farmers you know because
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again if you're a socialist um why do you need farmers you can get food from shops
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um he doesn't like the fact that these people are angry about these huge taxes because people
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because in his mind rich people should should not complain about taxes because they're not paying their
00:24:02.240
fair share um it it's it's awful and it's wrong so uh hopefully i can get a farmer
00:24:09.520
on the channel soon uh to talk about this but it's it's something that i had to flag up uh because
00:24:16.960
this this needs to come we need to come back to this and we're going to have to solve this this
00:24:21.920
problem as a country what else has been happening according to henley and partners
00:24:30.320
16 and a half thousand uk millionaires have fled the country since labor have got in and a bit before
00:24:37.040
when it became obvious labor we're going to get in and again the left is spitefully happy about all
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of this happening they're saying good riddance off you go um they have two thoughts on this one is you
00:24:51.680
know good that these evil rich people are going because they just don't like people who have money
00:24:58.320
and the other thing is when you when you put it to a lefty well more rich people are going to leave
00:25:02.000
and it's actually if you look at tax income i i know most of us pay tax but it's the it's the top
00:25:10.560
10 who pay the overwhelming majority of taxes if you if you force these people to go so if you if
00:25:15.840
you tell people you tell lefties that this is going to happen more they don't believe you they say well
00:25:21.520
how can they go why would they go they wouldn't just abandon everything because again in their mind
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they're running on an outdated model they think that rich people are these mustache twirling um
00:25:33.040
rich factory owners or something that are tied to the land but that's not how wealth works anymore
00:25:41.360
a lot yes that will be the case for some people but a lot of people they they actually can up and
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leave and of those almost 17 000 i'm sure it's 17 000 by now millionaires a lot of center millionaires
00:25:52.480
are going to be in there um people are just going to leave and it takes me back to that episode i did
00:25:57.760
broconomics of the sovereign individual the prediction of where the current economic logic
00:26:04.640
that governments are operating on people who can leave the western world will do so
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and invariably they'll make it harder and harder to leave and they'll be more and more punitive to the
00:26:16.480
people who stay the people who for whatever reason can't get out you know we we need to change this model
00:26:21.840
um let's move on let's talk about inflation um western governments are currently of the view
00:26:29.600
that they've got inflation sorted because the inflation number has come down but again as we
00:26:36.720
talked about on broconomics the inflation number
00:26:43.040
it's a rate of change it measures how much prices are increasing so inflation can come all the
00:26:50.800
way down to zero and all that means is that prices have stopped going up it doesn't mean that the
00:26:56.880
price level has come back down again and and your average normie gets this uh wrong they think when
00:27:05.360
inflation comes down what that means is the price level is coming down well the price level even at
00:27:10.000
inflation of zero the price level has still gone up and isn't going down you need negative inflation in
00:27:15.280
order to get the price level down um anyway so governments are very happy at the moment because
00:27:20.560
inflation is down to two or three percent across most of the western world including in the uk
00:27:26.720
but you still had the 30 or 40 percent a year that we had during the covid era
00:27:35.920
so where does that get us to the western world the uk has a major bond problem
00:27:48.400
bond yields are rising so again we've done an episode of that but a quick recap
00:27:55.440
bond prices and yields move in the opposite direction so let's say you've got a hundred pound bond
00:28:01.280
uh and it pays a coupon of five percent a year um so the yield on it is is five percent
00:28:11.600
if fewer people want to buy that bond and in order to sell it they have to drop the price
00:28:17.040
to say fifty pounds well it's still paying five pounds a year coupon um but five pounds on fifty
00:28:26.000
pounds is a ten percent yield so you see as bonds become less attractive the yield on them goes up
00:28:33.680
and that's really important because when the governments want to issue future debt because
00:28:38.960
remember they're running their these big deficits they have to in order to sell any of them they have
00:28:44.480
to match the yield that is prevailing in the market so the yield that they have to sell the new debt on
00:28:51.280
and also rises um and that's what's happened to labor in fact it's happening across the western world
00:28:58.640
is is after the after the uk budget um yields went up because bond buyers are increasingly realizing
00:29:08.400
that these governments have no plan to pay back real value they only have a plan to debase the money supply
00:29:16.480
so the value of those future series of coupons out into the future are going to be worth less
00:29:23.840
because of this debasement effect because of the money printing and therefore they are only willing to
00:29:29.440
buy these bonds um if the yield is suitably high enough in order to compensate them not the case for
00:29:37.920
all bond buyers there's a lot of people who are basically forced to buy bonds uh pension funds insurance
00:29:42.720
funds um a whole bunch of people are uh required through regulation to to buy them so you've always
00:29:49.440
got that floor but you've always got those marginal buyers as well who are looking at this and realizing
00:29:54.640
it's increasingly bad deal and so the cost of governments using debt to service this deficit that
00:30:06.240
they're constantly running is going up and up and this is a trend that is just picking up pace
00:30:16.720
there appears to be no viable plan to get on top of this
00:30:31.920
it's happening now um how does it play out does it play out by
00:30:42.720
you know a big event you know do we all wake up one morning to find that the bond markets have crashed
00:30:49.200
there's been this widespread um awakening moment but there's no there's no point buying these things
00:30:58.960
and governments collapse they can't pay the bills they can't pay the wages
00:31:03.760
i suspect not because they got this floor of buyers the people who regulate uh regulated into
00:31:08.480
being forced to buy it so i think we're just going to have this trickle where government becomes more
00:31:12.960
and more dysfunctional over time and the cost of government gets higher and therefore they impose
00:31:18.160
all these new taxes more people leave um they try and make it harder for people to leave and take their
00:31:23.760
money with them you know the i i suspect the collapse is going to be slow enough that government has time
00:31:30.000
to respond and try and make in their mind to try and solve the problem but everything they will do
00:31:35.120
will make the problem worse so i think we're in a grinding collapse and the uk you the whole western
00:31:42.320
world they need a political earthquake to save themselves which brings me on to the second thing
00:32:06.800
following on on this theme you'll be well aware that he's made a number of excellent appointments
00:32:11.760
uh i'm delighted every time i hear a new appointment i just think that's perfect there's a whole bunch
00:32:17.680
that we could talk about that probably don't fit into into into an episode of broconomics i love the
00:32:23.360
stuff he's been doing with um rfk getting the health department which is the largest spending department
00:32:32.080
in in all of the us i love the fact that he he took tulsi gabbard who is who was put on the terror watch
00:32:40.160
list and was harassed and um severely inconvenienced every time she she wanted to fly because of this
00:32:49.840
and she and they put her in charge of uh national security and intelligence agencies so there's a
00:32:55.280
whole bunch i love probably the most interesting for us for broconomics is going to be what they did
00:33:01.200
with uh this department of government efficiency doge headed up by vivek ramaswami and elon musk
00:33:08.400
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