A Brief History
As I reflect on life in the UK over the years, it is not hyperbole to say that the UK of 1990 is a very different place to the world of 2025. To ascribe these differences to one thing, such as politics, is far too simplistic. Although national politics has undoubtedly shaped the country we live in, and is important to the day to day, the world has moved so seismically in the last 35 years that it is arguably an era in its own right.
The geopolitical events have seen: the end of the USSR; the emergence of the nascent unipolar global order, the maturing of that order; the rise of China as the manufacturing hub of the West, its maturation to a great power; the emergence of information age; the internationalisation of the banking system, and the financialisation of that system; the emergence of the multipolar world order comprising the BRICS nations and the Western nations, the retreat of America; and now the arrival of artificial intelligence.
In the last 35 years, the shifting axis of power in the world, encapsulated in these events, is nothing short of epic in its scope and implications for the world as a whole, and as the context in which the politics of the UK are taking place.
Of all these things, one might imagine that the end of US hegemony is the significant driver in geopolitics. But then the emergence of AI, and the impact it will have on everything that is either systemised or information based is also hard, maybe impossible, to imagine today; greater than the arrival of the internet age, with all that has brought…but I’d like to argue that the most important one of these is actually the one that most people don’t immediately consider, and that is the financialisation of everything.
Money and Credit
To explore why, one should know something about the history of money. A full treatment of this has been done well by Alistair MacLeod (MacLeod Finance on Substack), and I’d recommend to all that some time spent reading his work is time well spent. The short version is that money was originally metallic, then abstracted to promissory notes exchangeable for metal (gold and silver), and then further abstracted away to just paper with no intrinsic link to the underlying commodity.
(The further abstraction in Bitcoin, and block chain based systems, is an extension of electronic cash transactions. It’s not relevant here per se, but does have wide ranging implications that are worthy of a separate discussion)
The latter is what we now look at as numbers in a bank account, and occasionally take out of a cash machine to spend as need arises. Money is now essentially credit; it represents promises between individuals. The flow of this credit through the system is liquidity; everyone needs it; it oils the wheels of everything necessary for daily life.
The use of money for 99% of people is straightforward; earn it, have enough to live, spend it, save it if possible, borrow it if needed, work and hope to have enough. There is an elegant simplicity in this, in the same way that I look back on my childhood in the 80s and 90s with a fond view of its simple beauty compared to today, I feel too that money should be precisely this; after all, it goes to the heart of everything that fundamentally enables the flourishing of society and culture, as it oils the wheels of aspiration and life (as energy also does with an equal measure of importance).
Without money, without credit, without liquidity, everything stops.
Taking this prismatic perspective of what money is to the man on the street, and turning it in the light, a new shade of the rainbow is cast; this colour is red, to natures green. It is that which has evolved in the shadows of the banking systems as the world has turned these past decades. It is this that is encapsulated in the notion of ‘financialisation’, and it represents the iceberg below the surface.
A Bubble of Everything
Financialisation is achieved via the creation of ‘derivatives’; essentially tools made by banks, to enable the making of money. These instruments are then traded and leveraged in markets where money is then made or lost. As with credit, one person’s gain is another’s loss, and vice versa.
The inputs to the financial markets are inevitably, at source, real things. Things like natural resources, or human effort. By contrast the inputs are scarce; all the gold ever mined would fit in 3.5 olympic swimming pools, giving everyone on earth approximately 1 Oz, or £2340 at today’s value. Human effort is limited by time and pure productivity.
The use of credit and derivatives is something else; you might take out a loan to buy a house, that loan is debt created from nothing, which produces a yield for the lender. It can then be bought and sold, or, as was laid out in the ‘Big Short’ film, it could be packaged up with other loans of varying risk profiles, which then slosh their way around the markets, allowing banks to free up capital to lend again in to the economy. The debt becomes blended in to a sea of debt obligations, falling out of memory like the Ring of Power in Lord of the Rings, intricately tied up with leverage (where banks lend extra capital to traders to magnify gains or losses), or money lent elsewhere for other purposes that are wholly unrelated to the person going out to work to pay a loan on a house in which they live, raise their family, or entertain their friends.
Concurrently, the money supply can be expanded by central banks, who loan money in to existence or print it out of thin air (via ‘quantitative easing’, or by buying debt in the markets), both an exercise in meeting the requirement for debt, thus providing liquidity on which the system runs, and this credit only to be destroyed when the debt is effectively paid out of the resources or human effort that settles that value.
The expansion of money in the economy is invariably conflated to ‘growth’, and for all intents and purposes, this bubble only expands, until it doesn’t, when the system collapses and resets the perception of wealth in respect of the debt that people have. But, this ‘growth’ comes at the cost to the purchasing power of currencies, and the destruction of private wealth starting at the bottom of society.
In essence, the bubble of everything is a mechanism by which assets are transferred to those who hold the wealth. Everything else is the veneer of reality that extends between the periods where resets occur; the crash of 1929 is one such example, and a brutal one at that. At these points in time, the reversion is to that which is real, credit evaporates.
A Shot Across the Bow
The complexity of this system is challenging to explain because it is so enormously, complicated, with detailed explanations a full time job for those who delve in to the detail of what is, and what happens, and what ‘what happens’ means. One quickly notices that subject area matter expertise is more than adequate to develop a perfectly successful career within a specific part of the industry. As such, the notion of conspiracy rather overstates the intentionality of what has created this edifice of risk.
A helpful summary of the status quo came from Warren Buffet, who described derivatives as ‘financial weapons of mass destruction’, which as we saw in the 2008 sub-prime crisis in America, led to the Global Financial Crisis (GFC), and the evaporation of liquidity from the markets.
He wasn’t wrong. The impact of the ensuing credit crunch was catastrophic not only for the banks that went bust, but also in the outworking of the devastation to the real economy where normal people live and work.
The impact of this for those whose lives weren’t turned upside down by the immediate damage to business and the economy was more insidious still. On the surface, politicians made noises, did little of consequence, and the world carried on, and here, another facet of money came to the fore.
The GFC marked a massive destruction of wealth in the economy. Some debt was lost as banks went broke, and with that, the creditors lost out on money that they were owed. In other areas, such as the housing market, the loss of equity in property left people owing more money than their house was worth. Markets took a significant downturn in value, erasing gains that would take years to come back to the same value, periods of 17 years; an enormous amount of time where real lives suffered the consequences of a co-opted system.
Action Reaction
In the fallout of the GFC, a decision was made to engage in money printing, in order to ‘make whole’ the banks who lend money to create the liquidity in the system, something that then happened again in 2021 when Western governments (mainly) chose to shut down their economies for something that later was shown to be of little consequence to health when compared to other causes of death.
Together, this creation of money massively increased the overall amount of cash in the system, and which, as expected, created an equally massive amount of inflation, which we now see filtering into life at every level, and particularly asset values. Experience is that money buys less, and things cost more. At a societal level, this is a rising water line that delineates those who live in increasing levels of poverty from those who (still) have assets, jobs that are safe (or safer), and savings they can draw down on.
As everything gets more expensive via inflation, people are forced to go without, take on more debt, governments must also pay ever more expensive bills. And within this, a new dominion emerges – the public sector; its size, its efficiency, its cost, its purpose, it as a tool of power, and how it is funded; taxes, and borrowing.
Taxes are a known quantity, but borrowing in the context of the markets, and the financialisation of everything in a globally connected system, is the last Jenga piece in this puzzle:
The government borrows money to cover the gap between what it takes in tax, and what it spends on things needed. The amount of borrowing is sensitive to what the country produces and sells (typically services and commodities); for most Western nations, and many other countries, the short explanation is that they have been spending more than they earn, and borrowing the difference for many years, running up enormous debt piles on which the same countries must pay interest to international lenders.
There are some points to note; as interest rates rise, so do payments, along with the shortfall of cash needed. As the growth (GDP) of a nation falls below the interest rate, so does the ability of that nation to shrink its pile of debt. This is a one way train that is only stopped by stopping the spending; massive non-spending, or austerity, or cancellation of services, or default on the ability to pay the debt.
These things stand in tension to each other, and this is where we are in the UK today, and it is an intractable situation unless political change can begin to chart a course to minimise the exposure to a future event that might pop the credit bubble.
‘Welcome to the real world’
The reality is thus: we live in a country that owes more money that it can pay back, spending more than it has, borrowing the difference on credit with interest rates mandated by markets that have the effect of driving the debt inevitably higher. This is what is known as a debt based collapse, where the level of debt becomes unsustainable with the consequence being a Weimar Republic style hyperinflation, or a collapse in the purchasing power of the currency on the international markets, which drives higher prices.
We are not alone. The lynchpin of the global system is the US, which itself is in $36Tn of debt owed today, and estimates of $73-$160Tn of unfunded liabilities (pensions / Medicare) that will be paid for by future taxation (or borrowing). The US has a notable issue with its own markets, which have been going ever upwards in lockstep, unshackled from the usual dynamics of what markets should do, and currency trading pairs that bear all the hallmarks of currency (war) manipulation, carried out with the very tools that banks have created within this system.
This is a manufactured unreality, where the value of everything is not free to find a level as determined by the market itself. The commodity silver is a good example of this, the value of which has been supressed by the bullion banks for decades, leading to a price that has failed to rise despite a supply deficit that has lasted years, and increasing demand for applications such as solar and electronics. Why? One may speculate, and many do so on these and more examples.
One must remember that this is also taking place in a hyper-financialised system, where the estimated global debt is $315 Tn, with approximately $1 quadrillion of exchange traded derivative exposure. As such however events unfold, what happens to the UK financial situation, it is unlikely to start in the UK; the US has the reserve currency, and much of the apparent manipulation is evident within the US markets. But anything that has a significant enough impact in one part of the system, is likely to spread rapidly globally, with the worst imagined scenarios leading to domino effects and impacts in every area where markets and debt extend in to anything that relies on credit.
The Limitations of Power, Knowledge, and Competence
Political parties have thus become one thing in relation to this; teams playing a game of tug of war over how fast we head towards the inevitable crunch, being spectated by countries full of citizens who believe that the spectacle is what matters, when the building they sit in is smouldering away, waiting for an inopportune spark.
In the context of the global finance system, there is a serious schism between national politics and geopolitical reality, which leaves few policy options open to chart a way forward.
The US offers an example; it has not revalued its gold since the gold window was closed. It still sits on the balance sheet at $42, while it is currently flirting with $3000 amidst massive central bank buying by China, Russia, Poland, and perhaps now the US itself. Adding a zero to this number would render the US solvent overnight, and before any consideration of monetising any other assets the US has added to the strength of its balance sheet.
But this comes at a cost; it would be a private wealth destroying event of epic proportions, leaving anyone without gold relatively x times worse off as gold was increased in value. Similarly, monetising land, for example, is a worrying move towards a tokenised future, where everything is given a monetary value so it could be traded.
In this scenario, is anything sacred? Is anything beyond ownership by a class of people who literally have a shot at owning everything? Indeed in the event of a debt based collapse, this might be, for all intents and purposes, a likely scenario; a terrifying prospect, but one that the status quo seems to all but guarantee.
It seems that the people who know most about the world as it is, are the traders in banks; but even they have but a narrow perspective on what they trade, and do so with severe prejudice to any consideration that might involve making less money than is possible. Or winning; by some notional definition. Ergo, the knowledge of traders seems to be not the place to look for a solution. Certainly Rachel Reeves is a hopeless case; she thinks that government creates growth, in a world where tax is already at the highest level it has ever been, the sentiment informs the beginning and end of any heed she deserves to be paid – growth is going nowhere while the means to create it are taken back by the state.
Such naivety is a tragedy for the people of this country, and the exposition of the fact her position is allowed to continue, is a reflection on all people in power.
But, this is by no means just reserved for Reeves. When lately have we had anyone who is able to meet the world as it is and even begin to chart a course?
I had sympathy for Liz Truss, whose self-admitted lack of understanding about the games banks play, and insight in to what the Bank of England was doing, on top of the unfortunate timing of her own policy announcements, was an inevitable press of the self-destruct button amidst the complexity of the financial world, which at the time was busy responding to the liability driven investment (LDI) crisis, where pension funds try to match their liabilities with assets that minimise the risk of interest rate / inflation changes. The timing is argued over, but a close look suggests that the Bank of England precipitated this a few days prior via a bout of unmentioned quantitative tightening, and the Truss mini Budget blew it as UK gilt (debt) interest yields went higher than pension funds could cope with.
This incident was an elegant illustration about the nexus of where politics intersects with the financial system, as well as the ease with which it is wobbled, and the political blowback from ‘mistakes’.
It is interesting to note that the 10 year UK gilt yields have subsequently gone much higher than was sufficient to precipitate the LDI crisis…one would be forgiven for saying that the markets control political economic Overton window with the gravitational force of a black hole.
But all this is somewhat abstract for the normal person, who wants to go to work, pay the bills, etc. and yet it is so fundamentally important. It’s important now, as I type this, because the price of gold, having gone up over 58% since mid 2022, which tells us something about the devaluation of the purchasing power of the pound, and all currencies in a mere 3 years.
This is a slap in the face of the Keynesians, and especially the magic money tree modern monetary theorists, whose experiments during the Biden era, and now in the UK have done so much to make the debt pile irretrievably large. They would have you believe that gold doesn’t matter, that commodities (by extension) don’t matter, and therefore that the ability of a society to produce things of value, with no irony, doesn’t matter either. MMT runs square in to the issue of scarcity vs bottomless credit.
The fact is that all of this matters. It matters because one can live in unreality, one can believe in the unreality, one can create unreality, and then reality reasserts itself, as it is doing right now.
The consequences are harsh; the movement upwards of the poverty line, the increase in the cost of debt eroding opportunity, the decrease in the purchasing power of money, and the evaporation of the wealth, particularly for the middle classes, who don’t own the same assets that those with significant wealth do; land, property clear of debt, tangible things.
This matters, because when you look at the news cycle, the narrative that is on show every day is stark in its inability to highlight what matters. Not only financially, but in every sector of life in the West. We now live in a world of distraction; the cult of diversity equity and inclusion, immigration, NetZero and energy propaganda, obfuscated information, too much information, the weaponisation of information, and underpinning it all, a complete and utter inability of people to hold anyone in public life accountable for anything, including having no idea of how to act in the interest of the people.
Destiny Demands Action.
The phrase “Give me control of a nation’s currency, and I care not who makes its laws” is commonly attributed to Mayer Amschel Rothschild (1744–1812), who founded the banking dynasty that bears his name. It’s an insightful comment regardless of source, and one that has an elegant rejoinder to the Reform party today, in the sense that what must be done will not be minor tinkering and perpetuation of the status quo.
The reality will be that events will drive politics, unless politics can get ahead of events. If this is even possible anymore…given timing and the reality of now, I don’t know if it is.
The power dynamics aren’t just financial, there are other drivers as well, such as the increasing involvement of corporate power in politics, the reality of resource scarcity (hydrocarbons / rare earth minerals / skilled productive labour); all are already driving huge and impactful political exercises such as Trump’s comments on Canada, Greenland, and Mexico, and will result in otherwise boringly predictable shocked pronouncements from the news commentariat, and political offices where posturing is the preferred choice over engagement with realpolitik.
People feel the approaching winter of the UK, and are instinctively leaving the self-serving incumbent parties. They have few places to go, but Reform has become the most significant rallying flag for the many.
However, they will not stay with Reform unless it has something credible to say about where we go next, a degree of urgency with which we plan to get there, and an obvious rejection of self service.
I cannot help but think that the order of business must be a loud call for a war time effort to move heaven and earth on the things that matter, so as to deliver some security of life back to the majority of the people; to reengage fully with reality, the pursuit of and exposition of truth, to build critical infrastructure, to rebuild community, necessitate the taking of personal responsibility, rebalance our expectations on how time is usefully and necessarily spent, to return to what matters.
This will now be inevitably painful, given how far we are now in to the reality distortion.
We do not have the privilege to live in the world of unreality that sees farming & industrial capacity destroyed, our cities turned in to third world back waters of knife crime and political religion. There must be no more two tier policing, or any other systems that fly in the face of what Britain once was. As such, there must be no place left for these things to remain.
Now is therefore the time to put ego and ambition for personal gain aside, now is the time to find allies to the choices that must be made as we navigate the rapids down which we travel. Now is the time to come together and find common interests, and to reimagine what we want this country to be for the generations who are yet to come.
So we must adopt the mind-set of Churchill, in his efforts to galvanise the country to war with that implacable foe; he understood that the constraints of war are not the constraints of peace.
If we are to reduce the size of the deficit, then the size of the state needs to be reduced; it must become an administrative state, not a providing state. People must stand on their own two feet, to be free to risk and benefit with the money they earn. We must focus on rolling back legislation, and freeing citizens from the inevitable end point of all bureaucracies, where the ability to do anything is stifled by the inclination to find problems over solutions, where linear thinking constrains the future, even in spite of the inevitability of change. And then we must build again, produce again, make again. We must find a way to return real wealth to people.
These things are possible, and we are free to choose them.
The spirit of the UK is one that birthed an empire with global reach. That spirit must be rediscovered and unshackled.
Our task is urgent, lest we do our forebears a grave disservice, ourselves great harm, and leave our descendants starting over again.
Authors Notes:
I am aware that I have simplified a number of things in this piece. I have done so because this isn’t an exhaustive analysis or reflection of all events; it is not intended to be.
I have also conflated certain concepts & drivers where a more exhaustive treatment would by necesity be more nuanced. However, for the purposes of where I think the general picture sits, and in respect of the drivers at play, these conflations are not critical.
In respect of the numbers that inform the question of the UK heading towards a debt trap:
- UK growth: 0.1%.
- 10 year gilt rate: 4.5-4.8%.
- Inflation (official): 2.5% rising to 3.7% in Q3 25.
- CPI and CPHI: 3.5%
- Deficit: £127.5Bn
- Debt: 98.5% GDP / 104% in 2025 and rising.