Chairman: Is Britain turning into a banana republic?

This scenario could be taken from Argentina, Turkey, or any other country with weak institutions and a history of macroeconomic populism.

A new leader was elected with promises to jump-start the economy with broad-minded policies, regardless of deficits and national debt. Finance Minister presents his proposal. Markets react to shocks. The currency depreciates. Interest rates on government bonds are increasing.

It looks like a developing economy, noted Harvard professor and former US Treasury Secretary Larry Summers. But this is about Great Britain.

Scripts vary Classic populism typically promises unfunded spending increases (“investments”) that push the growth curve higher. In the case of newly elected British Prime Minister Liz Truss, this is mainly about tax cuts (although generous energy subsidies are also part of the mix).

Truss’s main promise in this summer’s battle to succeed Boris Johnson is that she will be a Margaret Thatcher 2.0: immediate and big cuts to state tax that will turn the economic wheels. Deficits and debt ratios were less of a concern. Dynamic Effects takes care of that. Tory party members liked what they heard.

When voters were finally given the chance to have their say, they were presented with the choices of Boris Johnson and Jeremy Corbyn. Populism on the right and left.

Nobody cares that it’s 1980 anymore. Great Britain is Not a high tax country. The state collects less than 33 percent of the GDP. In Germany, the number is over 38. In Sweden, 43.

Someone is dramatic Productivity and growth will not be boosted by unfunded tax cuts. On the other hand, they risk turning the deficit and national debt into serious problems.

When the Finance Minister Kwasi Kwarteng presented a supplementary budget with record tax cuts on Friday, and markets reacted immediately. Investors shed both sterling and British government bonds.

Fed Governor Andrew Bailey tried to add fuel to the waves by promising he was ready to raise interest rates. However, he did not get any help from the Finance Minister. Kwarteng used Sunday instead to explain to anyone who asked that this was the beginning. The pound continued to fall on Monday.

Finally, Kwarteng promised to present an overview of the UK credit situation. And markets were quieter on Tuesday. We’ll see how long — especially if there are more unfunded tax cuts. However, this does not give momentum to the economy. Rather high interest rates. In that case, it slows down growth. Risk of credit crunch increases.

Britain’s problem is bigger than shaky government finances. The financial markets’ confidence in the country’s performance has been shaken at a very fundamental level.

The Magic of Liz Dress The thought of unfunded tax cuts runs parallel to illusions that leaving the EU will unleash hitherto hidden growth potential. After Brexit, something happened to the old safe, reliable Britain that was considered one of Europe’s most stable institutions.

The country has had three Prime Ministers in six years. When voters were finally given the chance to have their say, they were presented with the choices of Boris Johnson and Jeremy Corbyn. Populism on the right and left.

Ultimately, success is driven by confidence in the organization’s ability to make long-term and rational policy decisions.

Stability and order are what many associate with Queen Elizabeth’s country. King Charles has a very difficult kingdom to lead. Britain is in danger of becoming a banana republic.