THERE is, of course, a certain delicious joy in watching Liz Truss and Rishi Sunak tear lumps out of each other. But the likelihood is that Truss is going to win. This means the increasingly bonkers promises she is making to garner support from the Tory backwoods are about to form the policy framework for the fag end of this Conservative government. Hang on to your hats.

Truss is promising to divert or cancel the coming recession. That sounds a good idea to most of us. Apart from Andrew Bailey, the over-promoted, incompetent governor of the Bank of England, who actually wants a recession and an increase in unemployment. But hang on a bit. Nothing our Liz is proposing will actually halt the recessionary storm. More likely it will make it worse.

The bugbear is inflation. Bailey (below) and his BoE beancounters initially ignored the growing signs of an inflationary wave. Then they told us it would be shortlived. And now, in the Bank’s latest forecast, it is predicting inflation will hit a whopping 13% this autumn. In the small print, they also admit inflation will be at least 10% next year. In response, Team Bailey proposes a recession to stymie wage demands and cool prices. Typically, they are as wrong now as they were before.

The National: Andrew Bailey

In the real world, the business and financial community is predicting inflation is here to stay. One chief naysayer is hedge fund guru Crispin Odey, a prominent financial backer of both the Brexit campaign and Boris Johnson (which did not stop him making money by shorting the pound during the Brexit negotiations).

Odey has long predicted the return of inflation – hedge funds make their cash from exploiting economic uncertainty. This year, Odey’s main fund has more than doubled its value by betting on humongous inflation.

The point is that if inflation is now driving the global economic motor, it will take much higher interest rates and a much deeper recession – in conventional bourgeois economic terms – to bring it to an end. And there is absolutely no sign that energy inflation is going to end any time soon.

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The recent meeting of the Organisation of the Petroleum Exporting Countries (Opec) oil cartel decided to increase output by only a whisker, meaning supply is barely keeping pace with demand. Shutting out Russian gas, no matter how politically justifiable, means higher prices till somebody finds an alternative. True, US natural gas production is now at an all-time high and increasing. But you still have to liquify the stuff, stick it on expensive boats, and get it across to Europe, where the Germans will pay over the odds for it.

Even the economically illiterate can figure out that this permanent skyrocketing of energy costs is in itself the trigger for an economic slowdown. Inflation is robbing consumers of spending power and raising industrial costs, squeezing (eventually) profits. Sales and investment will contract of their own volition. As an advance indictor, we have already seen a massive drop in the share prices of leading high-tech and media conglomerates this year. This, in turn, is reducing unearned wealth (cheers) but making investors hoard cash (bad for new industrial investment).

The response of central bankers such as Andrew Bailey has been to raise interest rates. This does nothing to deal with the core problem of rising energy prices, of course. Rather, it is designed to make a recession come faster, and so reduce energy demand quickly. It is also designed to show private investors that central banks will do what it takes to throttle wage demands. In other words, it is a piece of political blackmail aimed at the trades unions.

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Spoiler: the trouble is that the central bankers are scared of the politicians. After all, actually engineering a faster and deeper recession is bound to be unpopular with the poor, bloody electorate.

Henca Truss’s public attack on Bailey and the BoE. She is running on a platform of stopping a recession. And she is hinting strongly about placing the BoE under stricter political direction, including rewriting its “mandate” setting out its official responsibilities.

In the face of such political pressure, Bailey and co have dithered on raising interest rates – then raised them only a bit. This dithering is actually catastrophic. By raising rates after inflation had already started slowing the economy, Bailey has only succeeded in pouring petrol on the fire. The economy was already heading for recession without the Bank’s rate hike. Raising rates now is adding braking power at precisely the wrong moment. Which means an even deeper recession.

Can Queen Liz come to the rescue? Absolutely not. First up, she plans to use the £30 billion chancellor Sunak had squirrelled away in his Budget to bribe voters in 2024, to cut taxes and boost consumer spending.

Alas that is nowhere near enough to offset the consumer spending power eaten up by rising energy prices. Truss is also talking about even more public borrowing. But increased borrowing at a time of rising interest rates will only result in the Treasury forking out more in debt repayment – actually squeezing public services.

Let me give you a wee example. The Treasury and BoE “saved” the economy during the 2008 banking crisis and later during the pandemic by a thing called quantitative easing (QE). Essentially, the BoE printed £850bn in a form of electronic money (called “special reserves”) and pumped it into the economy.

But to get the banks to accept this invented money, the BoE has to pay interest on it – interest the Treasury (ie the taxpayer) has to guarantee. The more the BoE puts up interest rates, the more the Treasury is liable for this bill for QE. I’d love to be in the room when Bailey explains this to Truss.

So don’t raise interest rates, I hear from the back of the room. But if the BoE does not raise UK interest rates, money will flow out of Britain to America, where the Federal Reserve is predicted to raise its own rate to around 4%. That’s more than double the current UK rate. Any lag between UK and US interest rates, means the pound falls in value. In turn, that means all of our imports cost more, adding to inflation.

Here in Scotland, we are mere spectators while Liz and Dishi Rishi slog it out. Liz, of course, has promised to go on ignoring us, anyway. Alas, we won’t be able to ignore Lizonomics when it hits us.

The BoE predicts that the economy will enter recession in the final quarter of 2022, just in time for Christmas. Lizonomics may cut taxes but inflation is going to go on rising. That means higher interest rates and a deeper recession.

Faced with economic disaster in an election year, Liz will invent political scapegoats galore: trades unions, immigrants, the EU and (naturally) the Jocks. So no referendum and repeated attempts to over-ride Holyrood from Westminster.

The poor folk of Paisley will get sick of being told that Liz is really one of them. Alas for Liz, the Tories only managed five seats out of 43 in Renfrewshire in this year’s locals.

Conclusion: time Scotland took matters into its own hands.