Emergency Budget: Kwasi Kwarteng
This week the world’s attention will be on Britain, but from tomorrow onwards the focus will shift from the spectacle of glory and sorrow to the stark reality of how the new government intends to rebuild the country’s economy and finances.
From this side of the Atlantic, the lining of Kwasi Kwarten’s emergency budget next Friday looks pretty bleak.
The dollar is soaring as a safe haven in troubled times and the pound is actually crashing, below where it was against the dollar when it was kicked out of the European monetary system on Black Wednesday 30 years ago.
It made George Soros wealthy, discredited the John Major government, and paved the way for the new Labor Party in 1997.
Immediate political decisions will be made in the UK, but in some ways financial and economic decisions in the rest of the world will be more important. If we can convince finance, we may have a happier outcome than what followed Black Wednesday. So what are the big bucks looking for?
First of all, I would like to say that Sterling’s fate has not been taken very seriously in America. What matters is the Federal Reserve’s next decision. Could he raise interest rates by 1 point instead of just 0.75%?–whether we see a bottom in a stock bear market, the prospect of a global recession, etc.
British property is a niche market with interesting potential, but remains unfashionable. Fashion will turn around, but before that happens a total rebuilding of self-confidence will be required, and that is the challenge facing the new Prime Minister. For the gist, I know enough to understand the gist of the challenge.
One of the challenges is convincing global investors that the widening deficit is temporary. They will only be ready to raise money at an acceptable cost if they see a way back to a deficit of, say, 2% of GDP.
There is no ideology against tax cuts. In any case, what appears to be proposed is mainly not to bring in the tax increases, national insurance premium increases and corporate tax increases planned by Rishi Sunak. But we need a medium-term plan to add up the numbers.
Challenge 2 is to flesh out the bones of this idea enough for Big Bang 2 to encourage US financial institutions to invest in the UK. I think the second Big Bang branding is a bit silly. The first restructuring of the Citi’s stock market in 1986 was done because London operated under a different regime than the United States – such as separating job seekers from brokers and not allowing foreign investment in stock exchanges. – And the way it operates has become unsustainable.
Now that the UK is no longer a member of the EU, we can make some changes to regulation, but these are minor in comparison. Take this business about no longer capping banker bonuses. What actually happened was that the banks had to increase the star’s base salary to make up for the cap.While annoying from their perspective, it’s not a game changer.One of the changes that might help The first is that regulators should pay more attention to the city’s international competitiveness.
Promoting financial services in London was part of the Bank of England’s informal mandate when it was the principal regulator. In particular, he worked hard on the reorganization choreography after the big bang. With that role gone, what’s happening is a return to past conventions.
Challenge 3 hinges on whether governments can significantly boost the underlying growth capacity to 2.5%. it should be achievable.
But the world of finance is a cynical place, and politicians setting growth targets are not impressed. Global markets would be impressed by serious efforts to reduce or eliminate growth inhibitors, often imposed by governments. If it’s just a bomb, they won’t. It’s going to be a pivotal week in so many ways.