A quick answer is world events. The pandemic recovery, labour shortages, supply chains, gas prices, Brexit, Covid surge in China, war in the Ukraine. The key point is that human history in one long chain of events, some good, some bad. What effect those events have on individuals or the society or country in which they live, depends on how the government of the day reacts.
The crisis we are now in is not just about the above list of general causes. It is about the government’s ability to do something about it. Never mind whether you approve of the action, does it have the tools in the box to do it? The answer is no. At least not now.
With globalisation came the rise of the financial sectors world wide and the power of the politically independent central banks. Since they were caught napping in the crash of 2008, when the entire financial system was on the brink, they have printed their way out of trouble and gone on printing. The initial effect was to inflate the value of fixed assets while inflation generally remained historically low. But now inflation has spread like a forest fire into every nook and cranny of the economy and has to be dealt with. How do you do that? You raise interest rates.
Not from nothing to nearly nothing. In real money. 5%, 6%, 7% or even higher. You squeeze the velocity out of the money system and make money expensive. It triggers a recession, allowing an economic reboot, but it is quickly effective. Asset froth dissolves, inefficient companies go bust, new start ups grow to fill the gaps.
Decisions like this are inherently political. Who shall go to the wall? Who shall be saved? Where are the priorities? These decisions require control of interest rates, borrowing terms, social priorities, credit lines, inflation levels and a host of ancillary elements to be the remit of the treasuries, ie governments, not central banks.
The Treasury is ultimately subject to a mandate from the people via the government they elect. But the banks answer to the markets and markets always act in their own interests and that of the financial sector. The Tories would say sound money is the core. It is. But under the stewardship of the seriously incompetent Bank of England and the hysteria of the markets, this is exactly what we have now not got.
Unless somebody gets a grip soon, this will go from a cost of living crisis to a financial crisis. And then to an historic Great Financial Crisis. It is not too late to stop this, or at least make it manageable. There are millions already under financial pressures unknown in modern times. To deal with all this the government has to have a coherent joined up plan for containment, revival and ultimately production led growth. The march of the makers, which never got started after 2010, will be sorely needed.
So far the government has been over confident that inflation is just a blip and over pragmatic in its response. To many it is out of touch, with only a thin grasp of social priorities and cold to the suffering of the poorest. In the end it will be this economic storm which determines the future of Boris, rather than Partygate or war in Ukraine. As for the dream of Brexit? Too many have woken up to the reality of this crackpot project. It is no longer an electoral triumph propelling Boris along, but a millstone which, added to everything else, might finally drag him down.