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Opinion from a Libertarian ViewPoint

Blain: The UK’s Monumental Policy Mistake – How Bad Will It Get?

Posted by M. C. on September 26, 2022

Tyler Durden's Photo

BY TYLER DURDEN

MONDAY, SEP 26, 2022 – 08:25 AM

Authored by Bill Blain via MorningPorridge.com,

Kwarteng’s response to the mayhem? “I don’t comment on market movements.”

Fair enough. When you know nothing and people suspect you are an idiot it’s best to stay quiet so as not to confirm it.

But is he aware of the consequences of what he’s done? 

https://www.zerohedge.com/markets/blain-uks-monumental-policy-mistake-how-bad-will-it-get

This is the man who bet it all on Red and it came up Black…”

What a mess. Kwasi Kwarteng’s Special Fiscal Operation failed to stabilise UK markets and has zero prospect of driving growth. The new government stumbled at the first jump. How bad will it get? What are the implications? Who is next for the Chancellor’s job?

There are policy mistakes, and there are Policy Mistakes, but few compare to the market Judder on Friday morning…. In terms of screaming, all-in POLICY MISTAKES new UK Chancellor Kwasi Kwarteng’s not-a-budget, his “Special Fiscal Operation”, went down about as well as a battalion of Russian chocolate tea-pots on the road to Kyiv. It was moment confidence in the UK’s Virtuous Sovereign Trinity snapped. Sterling Crashed. Gilt yields capped wider.

It ain’t over yet, this morning Sterling traded below 1.03 for the first time ever during an Asian flash crash. I will post regular updates on the comments page and Twitter as this crisis unfolds. The working assumption is even if Gilts and Sterling stabilise – the damage is already done. Expect… volatile politics and markets.

This is going to be a critical week for sterling. There are calls for the Bank of England to jump in with a 100 bp rate hike and currency intervention to stem the crippling currency losses. There are even rumours of yet another internal Tory coup being scoped in Westminster. Ministers trying to talk up export prospects on the back of the currency collapse knew they were defending the indefensible – the UK is a re-exporter and is importing further inflation at speed.

I warned three weeks ago that new UK Premier Liz Truss and Kwarteng had “5 days to Avert a Confidence Crisis in the UK”. She got a time extension because of the Royal Funeral. Turns out I was right to worry about markets. On Friday morning it happened – a 0.7% jump in Gilt Yields and the 3% tumble in Sterling. The response to the not-a-budget confirmed just how badly market confidence in the UK’s political competence, sterling stability and gilt market sustainability has been shaken.

Kwarteng’s response to the mayhem? “I don’t comment on market movements.”

Fair enough. When you know nothing and people suspect you are an idiot it’s best to stay quiet so as not to confirm it.

But is he aware of the consequences of what he’s done? The UK’s reputation for fiscal prudence has been sacrificed on the altar of political expediency. This is going to hurt. The weekend analysis was harshly critical – it was right to be so. Dr Doom, Nouriel Roubini, tweeted “Truss and her cabinet at clueless.” Former US Treasury Secretary Larry Summers said the UK will be remembered for the “worst macro-economic policies of any major country in a long-time..” He called the policies naïve, and the UK was an emerging market turning into a submerging market. I could fill the rest of this morning’s Porridge with similar negative punditry and doomster soundbites from analysts presenting variations on the same thing.

If there is a single positive economic comment written by someone not called Patrick Minford or Gerald Lyons – please post it in the comments section, because I can’t find it.

See the rest here

Be seeing you

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