The British Prime Minister’s budget project Liz Truss, who has resulted in her rapid resignation, has been described as a greater error in modern day economic policy. No doubt, but there are more essential and worrying lessons, which concern most of the planet governments. They intend to reconcile fight against inflation, response to the energy crisis, social demands for maintaining income, all in a context of major international uncertainties. British chaos shows that it is an impossible mission.
The mini-budget presented on September 23 is first of all the expression of harmful fundamentalism. Isn’t it surprising to refer to the theory of runoff under which the richness ends up contributing to the prosperity of the poor? The experience of the last two decades has however invalidated this belief. Stimulating the offer by reducing taxation on the rich is not always effective, takes time and above all does not respond to the energy shortage, one of the essential sources of the revival of inflation which today mobilizes opinion public against the government.
A considerable reduction in taxation on profits and income of the richest is in fact funded by an increase in public debt, which has set in motion processes which concern many governments, far beyond the kingdom -United. Indeed, investors, worried about the worsening of public debt, no longer buy public titles and thus jeopardize the pension funds which had anticipated the maintenance of interest rates at low levels by covering themselves on the derivative products market.
By their status, the pension funds with defined benefits must restore their position by selling public securities, which worsens the outbreak of interest rates and begins a new spiral. This vicious circle almost carried the British financial system: in an emergency, the Bank of England had to reserve 65 billion pounds (72.8 billion euros) to stabilize, for three weeks, the market, in contradiction with On the contrary, anti-inflationary policy which consisted in reducing the outstanding public debt. Thus linked the dogmatic approach to the economy, turbulence on the financial markets, loss of credibility of the government and new speculative cycle which threatens financial stability.
node of contradictions
The storm on the British financial markets point to most of the contradictions encountered by political leaders. Indeed, the United Kingdom has, like the United States, engaged in a strategy of leaving a long phase of quantitative softening, characterized by almost zero nominal interest rates and a refinancing of public structural deficits . However, the latter increased with the 2008 crisis, then the epidemic of COVID-19 and the after-February 2022 to fight against the runaway of inflation linked in particular to the explosion of the price of the energy that followed the invasion of Ukraine.
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