Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
Truss Plan Pushes UK To Edge Of Crisis
"Casino economics" that will "end in tears" with a possible run on the pound.
That's a spliced together assessment of Liz Truss's hotly anticipated economic plan for the UK, released on Friday to some of the worst reviews I've personally ever seen in any sphere, from markets to movies, from budgets to books.
The largest tax cuts in 50 years, including the complete elimination of a top tax bracket, an accelerated time table on a cut to the basic rate and the abandonment of a planned corporate t
It does not make sense to decry this tax giveaway to the rich as supply sided trickle down nonsense and fear it’ll stock inflation. Rich people don’t consume their tax cuts.
This could be a concern with the energy price shielding, though I’m still not clear on how it’s supposed to help if there’s just not enough quantity of energy to go around…
This goes way beyond that. This is a potential disaster. They’re an emerging market now. The fundamentals are in tatters. The setup is conducive to a growth-inflation-rates death spiral. On the FX front, there’s some serious blood in the water here. If speculators want to push the issue, they could trigger a crisis.
Only in EMs will you consistently see stock prices, bond prices and currency decline in unison. It occassionally happens in developed markets but that kind of move rarely or never persists. The British are still paying for Brexit and for electing the Tory Party and Boris Johnson as PM. Hard to believe but this is worse for Britain than Trump was for the US- although if Trump was re-elected the US would no longer have a functioning democracy. This is looking now like Truss and the Tories are going to get wiped out next go around in 2 years.
They don’t consume their tax cuts, they consolidate them. The UK is basically on their way to recreating the wealth inequality that exists in the US.
Margeret Thatcher’s ideas about maanging a modern economy were based on the model of her father’s grocery store. Conservatives constantly love to frame their explanations of economic policy in this way, wagging their fingers and telling you to “take your medicine” . In this case “you will have more incentive to work for the beneficiaries of our policies”.
I dunno. Cranking up interest rates to support the pound will only work if they can push up short-term interest rates to levels where it is too expensive to borrow pounds to sell. CBs in smaller countries have been able to carry off such targeted measures now & then. But could the UK do that? Or will they have to raise interest rates across the whole economy which ends up driving rates down later as the economy craters.
At least the Brexiteers can rest happy knowing that they are in charge of their own destiny, right?
I hope Scotland and Northern Ireland are on board.
MMT at work????
No. You’ve made it pretty clear time and again that you don’t have a solid grasp on what MMT actually is, so I’d gently suggest that until such a time as you expend the necessary effort to figure it out, you eschew the temptation to make what you mistakenly believe are sarcastic comments. Because nothing looks sillier than a would-be sarcastic comment that’s actually an uninformed comment.
Someone who actually knows a little about MMT:
https://stephaniekelton.substack.com/p/the-mini-budget-is-a-maxi-giveaway?s=09
Truss has no core principles or convictions, just pandered and postured her way into power. Wish the Tories had not made that choice.
Unless other levels of government in the UK also levy an income tax, her statement that 45% is the highest in the G7 is not really true. Combined federal and provincial effective rates in Canada range from 48 to 53%.
The highest combined marginal rate in California is 48%.
Sterling 4% lower now.
I wonder what the pain threshold is for Truss to get booted ad hoc. Would GBP/USD parity do it?
This politician is delusional, thinking that supply-side economics works since we can prove from the experiment that Reagan started that it does not work and can’t work mathematically. If implemented, this policy will cause the British to end up in tears. Unfortunately, the British won’t realize it until they have 15% inflation, and the Bank of England will probably have to raise the interest rate from 0.5% to 6%. Also, the current pay ratio for the top 350 corporations in Britain is 44:1 with their existing responsible tax structure. This new policy will get them closer to the irresponsible level of the US, which is 324:1. I hope Britain can find a way to get Truss out before she implements this inconsistent policy.
I have fears, probably expressed here a little too often, of something breaking due to the dollar, so will skip over that
But H — I’m guessing you are already a fan, or would soon be, of John Oliver’s show on HBO, assuming you haven’t completely eschewed pay cable alongside the rest of civilization. Sometimes when reading your posts, I find his voice creeping into my head. Yeah, I know the accent is probably way off, but he’s a fast talker unafraid of mixing in multiple 4-syllable words in multiple compound yet incisive sentences, while simultaneously trying to jam opaque and complicated concepts into our lizard brains. So hopefully you’ll be flattered or at least understand the comparison. But his recent show focusing on the UK and the US TV show Law & Order was one of the best ones I’ve seen.
He has a funny/alarming takedown of Truss’ first week or so in office which you would appreciate, including predicting (then) that the Queen’s shocking death at the age of 96 due to natural causes was perhaps the greatest favor anyone has ever done and will ever do for Liz Truss. Now that the Queen is gone and buried, the UK is left with a pent-up yet already fading new King Charles and a new Prime Minister seemingly hell-bent on making everyone forget, or perhaps long for, the last Prime Minister as quickly as possible. (If she starts dyeing her hair jet black, denying it, and selling arms to Ukraine to fund insurgents in Argentina, watch out!).
In the same show, he also references the smelly Wal-Mart shopper often-portrayed on Hannity, which I had not seen before, but which you might appreciate next time you cross the bridges. (But should one of your sojourns lead you past a psychic’s or medium’s shingle you had failed to notice before, I think Paulie Walnuts would lose a shoe to warn you to avoid at all costs).
Unfortunately, I could not find these segments of the show online, as they only seem to post the main segment of each show, which in this case concerns the Law & Order procedural I mentioned. Still worth watching, IMO, but if you can catch the lead-in segments on Truss and Wal-Mart, I highly recommend.
And to conclude, I cannot resist the dark side in re-emphasing this blog’s noting that America’s two closest non-continental allies are now engaged in levels of Central Bank and/or fiscal nonsense that only Erdogan might find prudential. What worries me most is who, right now, is going to be providing external financing to the rest of the world (unless on a predatory basis), at the same time we already have spiking prices and/or rates, famine, potentially existential war, and climate change the likes of which no one has ever seen or thought possible? Risk on, cuz light positioning? On my personal list of tail risks, deydrating to death has officially made an appearance and I’m not a young man and I live on the East Coast.
I wonder if this will accelerate not only the departure of Scotland from the UK, but also Wales and Northern Ireland?