The Senior Lecturer on asset valuations

If and when interest rates rise (and the Bank of England is suggesting it may do just that) and if and when they try (I emphasis the word try) to reverse QE, as they hinted they might only yesterday (although their hints are notoriously unreliable) then I suspect the time to a tipping point will begin to reduce, sharply.

It could, of course, be argued that this might be the best way that there is to reduce wealth inequality. I have to say that is not the way I look at this. The stress that a radical asset revaluation will create is enormous. Pension funds will be in massive deficit. Insurance company solvency will be challenged.

Pension funds are horribly in deficit as a result of low interest rates. Rising interest rates will reduce the actuarial cost of providing future incomes more than the fall in bond prices will reduce the capital value of the fund. For the reverse happened as interest rates fell. The same is true of insurance companies at the Ogden Rate reverses.

That is, rising interest rates is the cure for the very ailment that the Senior Lecturer tells us rising interest rates will cause.

It’s almost as if he knows nothing of the subject under discussion, isn’t it?

16 thoughts on “The Senior Lecturer on asset valuations”

  1. You’ve got to admire the type of person who parades their incompetence in public as much as Murphy does.

    Truly Murphy is the Florence Foster Jenkins of economics although at least she paid for herself and was not funded by third parties

  2. If he admits that falling asset prices would reduce wealth inequality then someone might ask if perhaps the recent increase in wealth in equality is not due to any horrible wrongs in society but just the discount rate moving around.

  3. The truly odd thing is that Snippa might not have been the most stupid person in the room :

    Prof Daniel Mugge (who has the amazing title of Professor of Political Arithmetic at the University of Amsterdam) made clear that financial crises are a first world luxury created by overfed optimism that inflates the quantity and value of debt, which in itself is always a measure of inequality.

  4. ‘financial crises are a first world luxury’

    Well you’ve got to admit that that is true. Other worlds have I am having to shit into a hole in the ground which feeds into the water I’m drinking crises, so on balance I know which I prefer.

  5. Just looking at my insurance company’s stress tests at the moment. A rise in interest rates isn’t the thing I’m worried about.

  6. “In the meantime, hold any savings in cash. That’s not financial advice. It’s just what I am doing.”

    But that’s all he’s ever done. He earns a wedge, spends nothing, has no mortgage, and clearly hasn’t taken any of his own investment advice or he’d be broke by now.

  7. I loved this in fairness:

    ‘In that case we have three options’

    Now for most people that are literate, that sentence implies that the three options are alternatives, not a subsequent wish list but step forward the Sage of Ely.

    ‘The first is design systems to prevent this happening again, such as better regulation, wealth taxation, international tax cooperation, universal basic incomes, better training in the nature of tax and money, and so on, all of which have to be underpinned by a new political narrative.’

    So many fallacies here it would take a small paper to address them all but suffice it to say the reference to better training in the nature of tax and money would be my favourite. The idea that Murphy has the vaguest idea about tax or money based on his published output is an entertaining notion.

    ‘Second, we have to ensure there are tools to deal with this crisis when it arrives like the Green New Deal and People’s Quantitative Easing, both of which remain pretty much unique in their potential role in any recovery’

    I have to agree with this – they are unique. Uniquely stupid and a surefire way to turn any recession into a prolonged Weimar style collapse. However, I’m not sure that’s what he was trying to imply.

    ‘Third, we have to be ready. We do not know when this will happen. We are in a Gramscian moment waiting for the new to be born. But it will be. Until then we despair knowing that what will come will be horrible, and base our appraoch on the optimism that there are solutions available for politicians to use when this moment arrives.’

    Truly channeling into a conspiracy theorist narraitve a la Michael Snyder, David Icke or suchlike. I particularly liked the idea that his life is ‘despairing’ – who says that the evil don’t get their just desserts?

  8. What cracks me up even more about this piece is that the Asset price inflation he bemoans is caused precisely by the QE that he assures us is costless. As Tim (almost the anti-Murphy) rightly points out QE hits (even obliquely) the Broad money supply. What Murphy’s proposal for ‘People’s QE’ will do is overtly create inflation in the Narrow Money supply.
    Of course the theory behind this is covered in an early part of any undergraduate economics course but if you walked out after the first lecture because 250 years of learning ‘was patent nonsense’ then you might not be aware of that….

  9. Political Arithmetic? I think I’ve heard of that before.

    In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later: the logic of their position demanded it. Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy. The heresy of heresies was common sense. And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right. For, after all, how do we know that two and two make four? Or that the force of gravity works? Or that the past is unchangeable? If both the past and the external world exist only in the mind, and if the mind itself is controllable – what then?

  10. Insurance company solvency challenged by rising rates? Not as much as the sage’s intelligence is clearly challenged. He appears to think he knows enormous amounts and then writes showing he knows little.

    Like GlenDorran I spend a reasonable amount of time on insurance company solvency and the number of firms with exposure like that must be in the single digits out of the hundreds in the U.K. The modus operandi of the leftist thought is to claim the exception is the rule and that their solution will fix the exception. We know it breaks everything else as collateral damage though.

  11. Quite so, Andrew. As Glendorran points out, actuaries are required to ‘stress test’ the funds for which they are responsible against a range of plausible future scenarios. Given that a future rise in interest rates to more historically typical levels is a virtual certainty (only the timing is in doubt), it would be impossible to argue that this should not form part of the stress testing.

  12. A very salient first world “luxury” is that it generates enough surplus to allow people like Murphy to rise to prominence instead of starving on a dung-heap as they should be.

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