Yes it's that bad. Never seen anything this in my adult life except maybe 2008 when it looked like total financial collapse. But QE and ultra-low interest rates were the steroids that got us out of that one and sowed the toxic seeds for this one. We are on fire but rather than reaching for water Truss/Kwarteng have reached for the petrol can.
www.ft.com/content/e4c27153-455c-4ae4-aa1e-98ac34ad37f0
Kwasi Kwarteng has shaken investor confidence in the UK
Market sell-off on ‘fiscal event’ was as bad a verdict as any chancellor could fear
It’s hard to overstate how poorly Kwasi Kwarteng’s so-called “fiscal event” has been received by financial markets.
Nothing in gilt markets in the past 35 years — not the UK’s ejection from the Exchange Rate Mechanism, 9/11, the financial crisis, Brexit, Covid or any Bank of England move — compares with the price moves in reaction to the chancellor’s mini-budget.
The brutal sell-off in UK government debt may have come in the context of rising yields across the globe, but it largely reflected financial markets getting increasingly concerned about the direction of UK macroeconomic policy.
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Bank of England data going back to 1772 shows that this level of deficit has only been exceeded on three occasions, each of them during the second world war. In simple terms, the British people have become poorer without enjoying the benefits of a more competitive currency that the textbooks promise. And they are more reliant than ever on the kindness of strangers.
The balance of payments crisis claim still sounds hyperbolic. After all, a weakening pound improves the country’s international investment position. And there is no obvious large overhang of borrowings in dollars that would raise the debt-to-GDP ratio if the pound falls.
But sterling has been increasingly at risk of losing its “developed market privilege”, which confers safe-haven status on your assets, increasing the state’s ability to run countercyclical monetary and fiscal policy.
Former US Treasury Secretary Larry Summers’ verdict was that “the UK is behaving a bit like an emerging market turning itself into a submerging market”. The chancellor has so far given every sign of disregarding financial markets in his calculus. It might be time for him to reconsider.