When Liz Truss was 'elected' as Prime Minister by 0.6% of all British voters I expressed some sorrow for a once great Britain:
Liz Truss is less competent than Boris Johnson but at the same level when it comes to lying. She also has no empathy. In the end she will look worse in office than Johnson did.
The damage of the Brexit disaster is still getting worse. The energy crunch, caused by the economic war waged against Russia, is tearing the country apart. […] The National Health Service is turning patients away for lack of resources.
Truss will worsen all that.
But the billionaires and banksters of the City of London will still applause her for lowering their taxes.
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With the election process rigged for the Tories and the Labour leadership held by the hapless and vindictive Keir Starmer there is little chance for regime change in Britain. When Truss falls the premiership could even go back to Boris Johnson.
Just three weeks later and we may already be there.
Liz Truss and her chancellor Kwasi Kwarteng are libertarians who believe that the state's function should be as small as possible.
On August 5, before Truss was 'elected', the Official Monetary and Financial Institution Service, a think tank, had predicted what was soon to happen:
If she wins, and enacts her promise of immediate tax cuts, the only safe prediction is that sterling will crash. The pound’s fall on 4 August – after the Bank of England raised its headline rate to 1.75% and warned of 13% inflation and a protracted recession – delivers a taste of things to come.
Britain’s combination of economic downturn and inflation is likely to be as severe and possibly as long lasting as in the 1970s. Truss’s policies are likely to make it worse. The idea of a bonanza amid stagflation is not just bold; it is foolhardy.
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Thatcher’s record shows she was determined to inflict pain before rewarding the punters with tax cuts. Upon taking office in 1979, Thatcher’s government doubled the rate of value added tax to 15% from 8%. She believed, rightly, voters had to accept hardship as a prelude to facing up to economic reality.If Truss becomes leader, she would follow the opposite course, with a pliant chancellor (perhaps Kwasi Kwarteng, the present business secretary) carrying out her bidding. Truss’s policy on tax cuts would prolong the often bizarre nature of Johnson’s three year rule.
As soon as the deceased queen was buried Truss went to work. Chancellor Kwarteng announced a 'mini-budget' that will lower taxes for people with high incomes while increasing the deficit to cover the promised energy cost subsidies:
It would be an understatement to describe Truss’s budget initiatives as bold. Last week, she announced the largest U.K. tax cut in 50 years, including a payroll tax cut and a reversal of a planned increase in corporate taxes. The estimated cost is $50 billion. This tax cut comes on the immediate heels of extraordinarily generous energy subsidies to households and businesses, at an estimated cost of $150 billion.
According to the National Institute of Economic and Social Research, the new budget initiatives will cause the U.K. budget deficit to balloon to 8% of gross domestic product next year. At the same time, the public debt will soon exceed 90% of GDP.
As soon as the 'mini budget' was announced the British pound sterling tanked. This not only against the overvalued U.S. dollar but also compared to the rather weak Euro.
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Interest rates on British government bonds (Gilts) increased sharply.
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After two days the British central bank, the Bank of England, had to intervene to prevent a Lehman like crisis that would have killed many British pension funds. The bank, which had just increased its interest rate to tighten money supply, reverted to quantitative easing by buying gilts in the open market. This will further increase the already runaway inflation.
The lower pound sterling with further increase energy costs. Many British homeowners have mortgage with flexible interest rates. They will get devastated by all of this.
Today Liz Truss gave a round of radio interviews.
Another Angry Voice @Angry_Voice – 11:49 UTC · Sep 29, 2022
Liz Truss getting absolutely ruined on local radio this morning
A thread, with credits …
Truss could not answer even basic questions about her budget and its consequences.
The British government received a lot of criticism over its move. Not because the IMF or other commentators think it is general bad what Truss and Kwarteng try to do but because it created uncertainty and trouble in the markets.
Adam Tooze writes that Truss and Kwarteng probably intended to create market jitter because it will help them to push for their real aims:
I am not sure that Kwarteng and team intended to produce a crisis that will supercharge their drive to slash public spending. But cutting government spending is clearly their plan. They have effectively said as much. And we should expect them to exploit the situation to pursue that goal and be braced for that.
On October 6 the Tory will have their yearly party conference. It may well become a challenge for Truss and one can not exclude that the party will simply dump her for the chaos she created.
Boris Johnson may be back as Prime Minister sooner than anyone expected.