On September 6th, 2022 Elizabeth Truss becomes the new Prime Minister of the UK after Borris Johnson resigned from the office. Truss wins a vote by Conservative party members by 81,326, against 60,399 for Rishi Sunak, who served as finance minister under previous prime minister Boris Johnson. After coming to power, Kwasi Kwarteng is appointed as chancellor of the exchequer by Truss. On September 8th Truss introduces a controversial and expensive scheme to cap household energy bills by way of Britain's response to Russia's invasion of Ukraine. However, the Queen passes away on the same day, suspending all government activities for the next 10 days. On September 23, The contentious "Mini Budget", also dubbed the 'Kami-Kwasi' detailing energy scheme prices over the six months unveiled by Kwarteng would require £60 billion ($67 billion). However, no measures to raise funds are announced. Major new borrowing schemes were announced instead. The move was met with political resistance and outrage. The markets also respond disapprovingly with the pound plummetting towards parity against the dollar. On september 26, Pound plummeted to new depths following more Kwarteng's announcement of more 'tax cuts'.
"UK could trigger a global crisis as pound collapses while bond yields soar". Larry Summers says in a short period of time uncertainty doubts fear and the worst omens have surrounded the British economy things are not going well at all in less than a year the interest rate demanded by the market for UK government bonds has increased tenfold as you can see while at the end of 2021 the British government could issue two-year bonds paying little more than 0.4 percent following the pound crisis the required rates exceed did four percent.
Bloomberg reports that UK inflation could top 22% next year, warns Goldman Sachs. So what the fuck is going on in London and why has UK's debt exceeded than that of countries like Spain, Greece and Italy? And to top it all up why did Liz Truss come up with a plan that drove markets crazy only to toss it in the trash a few days later.
To start off, let's be clear the UK has a serious problem since the financial crisis of2008 the economy has not been the same the latest example as you can see it became the only G7 member whose economy was smaller in mid-2022 and it had been before the pandemic even the recovery of a country like Italy was stronger.
But this is just the tip of the iceberg since the financial crisis real GDP per capita in the United Kingdom has barely grown and has fallen far behind countries such as the United States and Germany. We're talking about a difference of almost 10 points this lack of growth less than four percent in 14 years has meant that public services have had to be increasingly financed by debt and also by the highest tax burden in the
country in the last 40 years.
And what was to blame productivity to give you an idea between 2008 and 2020 labour productivity in the UK Bailey grew by 0 0.4 percent less than half of the OECD average in Hard Cash terms this meant that compared to countries such as France and Germany the British lost four thousand dollars per person and it shows. So the question is why on Earth is there such little growth in British productivity?
Well among other factors it's because in this country business investment that is - investment in machines factories computers work centers etc is at Rock Bottom
To top it all off public debt as a percentage of GDP has reached its highest level since 1960. so as you can see the British economy is neither at its best nor is it what we would call buoyant. The UK is also facing one of the worst trade deficits in the past few decades.
The last few years have been rather dismal and that is precisely why the new prime minister Boris Johnson's replacement at number 10 Downing Street Liz Truss presented a mega plan to end all of the plans. "In these tough times we need to step up I'm determined to get Britain moving to get us through the Tempest and to put us on a stronger footing as a nation" said Lizz Truss.
TRUSSONOMICS the plan -
Just two weeks after taking over the reins at 10 Downing Street Liz Truss's new government hit the ground running and presented an economic program that broke completely with what had been conservative party policy for the past decade Liz truss along with her ex-Chancellor of the exchequer Kwarteng designed a bombshell of tax cuts regulation removal and public spending in the hopes of Reviving The British
economy. A shot of adrenaline to get the country's economic heart beating again according to the Prime Minister herself the fundamental objective of this plan was to do away with redistribution policies and focus entirely on production and productivity
So put another way to stop thinking about how to distribute the money and focus on how to create it again what was completely unsustainable was this idea we could simply tax our way to prosperity and burst through the fact that it was a 70-year high of tax where did you want that to end, Kwarteng Chancellor of the exchequer. Keep in mind that this is not an improvisation or a plan designed at the last minute not at all in 2012 both Liz truss and Kwarteng co-authored the book Britannia Unchained which broke down many of these ideas and of course when they came to be in power they had the opportunity to put their theories into practice.
On September 28, A two-week programme to buy long-term UK bonds was announced by the Bank of England, to fix the turmoil in the bond market that put British pension funds in jeopardy. On October 3, Truss and the Chancellor scrap the proposed tax cuts after rushed midnight talks in what is seen as an. embarrassing U-turn for the Truss government. 2 days later, Truss doubled down on her "growth, growth, growth" agenda in her address but both party and the markets remained unsure. Rising mortgage rates impact UK households, leading to further discontent. More U-turns continue with Kwarteng first revealing he will release the medium-term fiscal plan alongside independent budget forecasts on October 31. Further cuts to public spending, however, were dropped after yet another U-turn announced by Truss despite promises of no further modifications. The image of the government, however, failed to inspire confidence. On October 14, Kwarteng was fired after just 38 days in the role as markets remain grim. On 24th October, Amid rising speculation over the future of her six-week-old government, Liz Truss resigned as leader of the Conservative Party and Prime Minister. Making her the shortest-serving former prime minister, resigning after seven weeks.
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