Currency speculation
Over the past few weeks it has been suggested that the last time we saw speculators swoop in on the pound - to the extent that we saw after the publication of the Truss/Kwarteng mini-budget - was back in 1992. At that time speculators - notably George Soros - shorted the pound, betting on the fact that the UK government would be forced to withdraw from the ERM - the European Union’s Exchange Rate Mechanism. Soros is reputed to have made $1bn or more by essentially betting that the markets would force the government’s hand.
The situation after the recent mini-budget was that the UK Chancellor committed to make a series of tax cuts (e.g. a reduction in corporation tax and a reduction in higher rate income tax) in the hope that this would act as a massive growth stimulus to the UK economy. However, he apparently failed to properly consult the Office for Budget Responsibility. And he then got in a pickle with the IMF who warned that his tax plans would result in a £62bn shortfall in public finances - at a time when the public finances were under considerable strain.
Of course no such admonishment came from the IMF when the UK government was running up eye watering levels of debt during 2020 and 2021 when the government’s lockdown policy and public health interventions crippled the economy. Total UK public debt is now just shy of £2.5trillion.
Nevertheless, it’s clear that the IMF advice was helpful to currency speculators (and political hyenas). Just as the UK government was forced to change tack in 1992, in 2022 the Bank of England was forced to bail out gilt markets and the Chancellor of the Exchequer was sacked for implementing the very policies that were the central plank of the new Prime Minister’s campaign promises during her leadership challenge. Meanwhile, the pound was rallying anyway and most economic commentators acknowledged that this particular round of pound shorting barely registered on the Richter scale. In short, it feels much more that this was about regime change in the UK government.
Joe Biden, when asked about the UK’s malaise at the top of government, made clear that he took a dim view of tax cuts for the rich. This was hardly helpful for Liz Truss.
The result - namely the imposition of Jeremy Hunt as the caretaker Chancellor - means that Truss is effectively a dead woman walking. Her new Chancellor, who failed in his bid for the leadership of the Conservative Party, is now the de facto Prime Minister, implementing policies that are the diametric opposite of the PM’s much-touted Trussonomics.
The key question is who was behind the regime change? And how much of a part did the Biden administration play?
Truss was clearly on-message regarding Ukraine and was very much playing to Uncle Sam’s tune. The UK has continued its contributions to the Zelensky regime - with the largesse funded by further-escalated UK debt. But, clearly, the economic policy of a growth oriented UK Chancellor doing his own thing presented a challenge. Ironically, the last thing the Biden regime wanted was for a low tax UK to challenge the US dollar’s attempt to become the dominant reserve currency again - especially with Russia and China (possibly with help from India) challenging the US-centric currency hegemony.
With Hunt installed - almost certainly the WEF’s preferred candidate for leadership - and Rishi Sunak snapping at Truss’ heels for leadership - the leftist/liberal balance is restored to Western geopolitics. The G7 will breathe a sigh of relief and the focus can go back to constructing the groundwork for digital currencies pegged or hovering around the dollar. The leadership at Number 10 will very soon be restored to puppet status.