Guest article – Liz Truss: an Early Assessment on the Prime Minister who shook the world with her Massive Butterfly Wings. Nobody does it Better!
Liz Truss: an Early Assessment on the Prime Minister who shook the world with her Massive Butterfly Wings. Nobody does it Better!
20 October, 2022 Ohio USA
What an incredible six week “shock” Liz Truss left behind on so many important fronts. As historical and potentially enduring legacy, governments must now be especially careful about fiscal pump priming in an inflationary environment – because PM Truss and her first Chancellor Kwasi Kwarteng irresponsibly and somewhat unwittingly dared the financial markets and lost.
Be forewarned; Truss’ government caused a dangerous brush fire which could now infect other countries, should those external countries pursue even a hint of unfunded tax cuts and too much deficit spending. That includes fiscal measures as potentially innocuous and compassionate as extended energy relief for UK consumers impacted by the Ukraine War.
In essence, Truss’ miserable six weeks had huge ramifications for the UK – and for global financial markets and global national security. Indeed, I foresee Truss’ failed short six weeks as PM having a significant and lasting impact well outside the UK. Thus, Liz Truss inadvertently wins my Butterfly Wing Flap Award (which is what I named my December 30th, 2021 Federal Reserve forecast commentary that appears here separately on this website).
Beyond the Wing Flaps on the tax and spend side, Truss’ failed policies likely mean that central banks will act with more discipline and independence over these next momentous months as they battle inflation and much more. That’s as the Bank of England (BOE) threw down the gauntlet by engaging in short term bond buying (to rescue UK pensions), but only on an emergency interim basis. Moreover, it appears the BOE is planning to begin its QT bond sales program with only the shortest of delays (as of November 1 it now seems).
Note too that although Liz Truss was hawkish on security and towards Russian President Putin, the incredibly hard hit UK consumer is now likely to only receive short term energy relief (which is an unwitting but significant gift to Putin). That’s as the best way to keep UK and European citizens supportive of Ukraine is to limit their own relative hardship, via the provisioning and dispensation of energy relief (which will now be more limited, courtesy of Truss’ fiscal fiasco).
So for six short disastrous weeks and as recap, Truss created shock Butterfly Wing Flaps in the following ways:
- Limiting Western governments the latitude (and quiescence) of financial markets to do unfunded tax cuts and pump priming deficit spending (especially during inflationary times).
- Restoring fiscal austerity (and associated economic orthodoxy) to unlikely prominence – even when it comes to energy relief packages for hard hit consumers.
- Strengthening the independence of Central Banks vis-a-vis Western governments – and increasing Central Bank’s backbone to fight inflation and continue their QT programs (and commensurately reducing their willingness and temptation to “backtrack” and resume policy “largesse” type measures once again).
- Hurting stretched UK consumers who will now get shorter duration and smaller energy relief packages, despite the higher daily basket costs they face in staples like food, energy, housing, and the like.
- Reducing the time Ukraine has to successfully prosecute its counter-offensive against Russia – and potentially shortening the period the West can maintain the support of the body politic for Ukrainian solidarity and assistance.
- Inadvertently and ironically becoming Putin’s best friend. Beyond Reason #5 in particular, all of the points above limit Western countries’ capacity to fight future financial crises (perhaps in quite enduring ways). As such, this is is the final remarkable legacy and “gift” Truss’ ill-fated tenure provides to authoritarian foes of the West.
Thank you, Liz for such a whirlwind ride! What am amazing set of powerful Wing Flaps you set in motion in just six short weeks (of which the first 25% were devoted to mourning the late Queen). Nobody does it Better – or Half as Good as Yodavid_schane@hotmail.com
Guest article by Mr. David Schane
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