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Thirty years after what is known in London as “Black Wednesday”, the pound once again experienced days of maximum tension in September 2022.
While on 16 September 1992, the Bank of England had to succumb to the financial assault led by George Soros, this time it was the British government itself that unleashed the storm.
Specifically, the economic plan presented by Liz Truss and her Chancellor Kwasi Kwarteng set off all the alarms, to the point that many are now asking questions about the future of the British economy and the solvency of its government. In this video we tell you all the details of Liz Truss’ failed plan for the UK to make Brexit a success.
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This video is made possible by nordvpn Go to nordvpn.com forward slash vpen and Get a two-year plan with a huge discount Plus four months free more on this in a Moment [Music] Thirty years after what is known as Black Wednesday the pound has once again Experienced days of Maximum tension in September 2022 while on 16th of September 1992 the bank of England Itself had to succumb to the financial Assault led by George Soros this time it Was the British government that Unleashed the storm on 23rd of September 2022 a bizarre story began that ended With an IMF reprimand a massive outflow Of investors an emergency intervention By the central bank to try to contain The chaos and the dismissal of the Chancellor of the exchequer Quasi Quateng in just 38 days after taking Office 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 [Music] And to top it off we can find news like This UK inflation could top 22 next year Warns Goldman Sachs so the question is What on Earth is going on in London what Could explain why the cost of British Debt has exceeded that of countries like Spain Greece and Italy and the most Important question of all why did Liz Truss come up with a plan that drove the Markets crazy only to toss it in the Trash just a few days later Visualpolitik community in this video We’re going to answer all these Questions but first we need to know Exactly where things stand this is the Necessary starting point for Understanding the actions of the British Government let’s get started But before we go any further let me tell You about one of the most common cyber Security threats fishing imagine you get An email from Facebook saying there has Been a login to your account from Vanuatu click here if it wasn’t you Concerned you click enter your email and Password and that’s it you’ve just Fallen for the Trap this is how phishing Works scammers send thousands of emails Pretending to be Banks social media Platforms and even government
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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 [Music] And what was to blame productivity to Give you an idea between 2008 and 2020 Labor 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 [Music] Well among other factors it’s because in This country business investment that is Investment in machines factories Computers work centers etc etc is at Rock Bottom you don’t believe me well Take a look at this [Music]
It is the lowest of all G7 countries Even Italy scored better than them Financial hyper specialization and Uncertainty caused by brexit have a lot To do with this poor performance which In addition has had other consequences For example Mega Financial concentration Lack of investment and poor productivity Performance have made the UK Increasingly dependent on the outside World resulting in a current account Deficit of over eight percent Fundamentally this is a consequence of The strong trade deficit that is Imports Far exceed exports Wait a minute this is not necessarily Bad as long as Financial exports are Able to compensate for it and if not Just look at how the United States does It the problem is that in order to do That you have to have the confidence of Investors in the rest of the world so That they keep buying pounds because if You lose that confidence then you can Really get into a huge crisis of course This is not the only consequence of Under investment and poor productivity Growth another much more visible Consequence has to do precisely with Wages [Music] To give you an idea while in 2007 British wages after inflation were Higher than those of France or Germany
These days they are already lower why Well because between 2010 and 2019 it Practically didn’t grow at all in Addition low-income British households Are also much poorer 22 and 21 poorer Than the French and German households Respectively And to top it all off public debt has 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 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 plans listen up 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 Trussonomics the plan [Music] 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 crazy Quateng 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 quasi-guartang Chancellor of The exchequer and 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 quasiquarting 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 now although many Of you already know this perfectly well There is one question that we have to Answer what exactly did this supposed Return to the Thatcher ERA with some Shades of difference consist of what you See on the one hand the government made Public its intention to carry out the Largest tax cut since 1972. This includes a host of measures such as
The reversal of the profit tax increase To 19 a one point reduction in income Tax for all taxpayers the reduction of Taxes on Capital reduction of Social Security contributions the freezing of Excise taxes and even initially because Later as we will see they had to suspend It the reduction by five points off the Highest income tax bracket in other Words no radical change but many small Changes that together will amount to the Largest tax cut carried out by a British Government in the last five Decades of Course now with the dismissal of the Former Chancellor of the ex-chequer it Seems that many if not most of these tax Measures will come to nothing at the Moment the reversal of the corporate tax Increase and the reduction of the top Income tax bracket seemed doomed to be Ostracized But no this plan was not all about taxes And maybe many of the other things will Stay [Music] The new government has also pledged to Slash regulations for example they Started to do this by suspending the Legal limits on bonuses in the financial Sector a limit that was established by The European Union in 2014 and that’s Only the beginning we welcome the Chancellor’s clear Direction and new Approach and his strong endorsement of
The financial services sector as the Catalyst for the UK economy the measures Announced today are the start of what is Needed to unleash the full strength of The sector statement from UK Finance the UK Financial employers organization they Also announced the creation of numerous Special economic zones throughout the Country these zones will have certain Tax and Regulatory advantages and their Number one objective will be to increase Business investment it was something Like an evolution of the Johnson Government’s Freeport project that we Covered previously here on visualpolitik Investment zones go further than the Recent Freeport regime as well as Greater tax incentives to attract Businesses they also reduced the Bureaucracy and protracted planning Process which often stops investments From happening at all together Ben Houchin conservative teas Valley mayor Now then let’s see if I were to ask you What’s the most worrying problem in Europe today three two one exactly Energy or rather the cost of energy [Music] Korean and the use of energy as a weapon Strengthening our energy security is an Absolute priority Jacob Reese mogg UK Energy Minister well in this matter the Trust government has made it very clear The UK has to get hold of an abundant
And at the same time cheap source of Energy and the question is how do they Expect to do that well in addition to Maintaining the nuclear plans of the Previous administration this government Has also announced new exploration Permits in the North Sea and above all The end of the moratorium on fracking Low taxes deregulation special economic Zones and fracking it sounds like the Golden Dream of brexit at least of Course of the brexit advocated by Conservatives and pro-free Market Supporters doesn’t it [Music] We are talking about a huge package of What in the economic world is known as Supply-side policies that had a very Clear objective to get the British Economy to wake up once and for all and Return to growth which given the Circumstances may make a lot of sense After all gaining competitiveness was The main argument in favor of brexit Low growth isn’t just numbers on a Spreadsheet low growth means lower wages Fewer opportunities and less money to Spend on the things that make life Better but wait a minute we started this Video by saying what you all already Know but the government’s plan ended With an emergency Central Bank Intervention to stop the pound from Plummeting which Liz truss eventually
Cut short so the question is why on Earth did the markets become so nervous About a tax cut it seems Counter-intuitive doesn’t it [Music] Well visualpolitik viewers the answer Has a lot to do with the second part of The trust plan the part that Still Remains and that has nothing to do with Margaret Thatcher along with tax cuts Deregulation fracking and everything Else the government has also promised a Huge increase in public spending Specifically in two areas do you Remember what is the biggest concern of Households businesses and governments Across Europe right now the cost of Energy well the UK is no exception and Yes fracking a new exploration Pursuit May help but the problem is that it Won’t do it fast enough so do you know What the government of Liz truss has Done well they have announced a maximum Price for Energy paid by households and Businesses the difference will be Covered with a subsidy that will be paid By the government and as you can see on The screen it is the largest energy Subsidy scheme in Europe we’re talking About the gigantic cost that could be Between 100 billion and 200 billion Pounds The objective is that the energy crisis Does not affect the national economy it
Will not push companies and families Until the country achieves alternative Sources of cheap Supply the problem is That this raises the suspicion that the Subsidy and with it the bill could drag On longer than expected however we must Insist that we’re talking about a Temporary measure not an expense that Will be Consolidated over time But that’s not even the end of it at the Same time Secretary of Defense Ben Wallace confirmed what was an Open Secret by the end of this decade the United Kingdom will raise its military Budget to 100 billion pounds that’s more Than 110 billion dollars that means more Than doubling the current budget and Raising the military efforts to three Percent of GDP in just eight years in Other words from now on every year that Passes the British military budget will Grow generously which obviously means More spending more deficit and more debt Well there we have it if we take into Account the promised tax cuts and Spending increases we find ourselves With something like a huge fiscal bomb Eerily similar to the one that triggered The crisis and one that has ended up Blowing everything out of the water We’re talking about a huge gap that over The next few years could lead to more Than 80 billion pounds a year a huge Amount of additional money to add to the
Already large budget hole and perhaps That is why the government did not Present its plan to the office for Budget responsibility why because they Would criticize it the problem is that This office which by the way was set up By David Cameron AS precisely that Function now what effect could this plan Have on the British economy and do the Markets have any confidence that London Can pay its bills well let’s see [Music] The Panic Well visual politic viewers Tracy’s plan May have made some sense but it was a Huge gamble where results are not Assured among other reasons because Despite everything there are serious Doubts that what was announced would be Enough to boost the British economy so The presentation of the plan had three Immediate effects firstly the pound Plummeted and reached its lowest level Against the dollar secondly government Bond yields soared above even countries Such as Italy Greece and Spain maximum Tension in the United Kingdom the pound Plunges to 1971 laws and its bond yields 4.2 percent and thirdly given the two Previous consequences there is about to Be a huge financial crash with the Pension funds Why because fixed income yields have Been so low over the past few years that
These funds have been investing more and More in interest rate derivatives to try To improve their yield levels and of Course when the storm hit their Derivatives suddenly lost value and they Had to increase the collateral required To trade these products this led them to A liquidity crisis and having to sell Assets at full speed and in a way this Is what forced the central bank to step In with a 65 billion pound emergency Plan with this intervention and the Promise to present a budget stability Plan nerves were carved and with it the Pound has partially recovered But the tension in the markets continued And the political fire was raging but Why was there so much fear in the market And could it be that investors do not Like low taxes well the truth is that we Can find three very clear reasons [Music] First of all the huge budget Gap this Plan entailed was basically going to be Financed with debt and we’re talking About an amount that over the next few Years could total more than 300 billion Pounds of additional debt and the Problem is that we are no longer talking About near zero rates as was the case a Short time ago now the yield on British Public debt exceeds four percent in Other words the country would have to Start paying a lot more interest this
Would further complicate the Public Accounts there is a real risk that International investors will lose Confidence in the UK government and that Will lead to a sterling crisis the Market is asking how are you going to Pay for this Market doubting Chief Investment officer at Blue Bay Asset Management secondly because it was Feared that this plan could further fuel Inflation and the loss of the value of The pound which in turn would increase The cost of imports and the current Account deficit this could lead to more Inflation and further falls in the power It would be back to square one thirdly If this scenario came to pass at the Same time as the government maintained Its fiscal pump the Central Bank may be Forced to raise interest rates further To fight inflation and stabilize the Pound and then higher rate could hurt Growth as they could reduce demand for Credit and investment projects in Addition they would also further raise The cost of government debt further Complicating the fiscal Outlook you see What the markets feared was that this Plan could end up causing a huge crisis Spiral now if this were the case why on Earth did the government come up with Such a plan [Music] Well basically because what truss and
Quantum were hoping was that thanks to All these measures the British economy Would wake up and form better than the Rest of Europe and that growth would Then dilute or sidestep all the problems We’re talking about a lot of debt true But the spending was essentially Temporary and we also have to bear in Mind that the government expected to Freeze public spending in the medium Term markets move all the time it is Very important to stay calm and focus on The long-term strategy quasi-quarting Chancellor of the exchequer in the end If one thing is clear it is that he was Not given enough time quoting has become One of the chancellors of the exchequer Who spent the least amount of time in Office just 38 days which by the way Seems to suggest a huge betrayal and a Huge disloyalty t on the part of the Prime Minister because this was not the Quieteng plan but fundamentally it was The truss quatteng blang anyway what do You want me to say The British economy Probably needed this kind of Revival the Problem is that perhaps the government Was too ambitious after all reconciling Rubber taxes with a huge increase in Public spending may not be the best idea In the world right now although in our Patreon bulleting we gave you some Clues As to why the criticism may have been Overblown be that as it may the pressure
Has been so extreme that the government Has had to backtrack fire quatting and Announce a new last minute improvised Plan that remains to be seen what seems Clear is that what there will not be is Much political Capital kwate’s dismissal May have brought Liz trust time but Right now her future looks complicated At least that’s what the polls are Saying today but again let’s not kid Ourselves regarding the failed plan one Way or another perhaps more Progressive This is the path that brexit forces to Follow if the UK wants to succeed it has To become a very competitive place in The world and to achieve this there is Only one possible Direction Liz trust Herself seemed to be clear about that at Least until now I have three priorities For our economy Growth Growth and growth but now it’s your turn What do you think of the British Government’s plan do you think Traconomics would have been successful Or would it have meant the end of the Conservative government era what path Should they follow now leave us your Answers in the comments and now if you Found this video interesting don’t Forget to like And subscribe to Visualpolitik if you’ve not yet done so Thank you so very much for watching all The best I’ll see you next time