Jon Moynihan has written a fascinating piece for the Critic in which he lays the blame for the fall of Liz Truss’s Government squarely at the feet of the Bank of England. It wasn’t the ‘disastrous’ mini-budget that caused the pound to plummet and bond yields to rise, but the Bank’s scandalous mismanagement of the money supply – based, in part, on its desire to protect its pension fund. Here’s how the piece begins:
George Soros is widely known as the man who broke the Bank of England. As we will see, the Bank is quite capable, advertently or inadvertently, of breaking governments.
The brutal demise of the Truss administration following the mini-budget has been widely attributed to the market’s reaction to the expectation of unfunded borrowing occasioned by tax cuts and the fuel price cap. To the contrary: the market’s behaviour was quite clearly a response to the actions – and inactions — of the Bank of England, before, during and after the mini-budget.
One part of, but not all of, the case against the Bank has been cogently made by Narayana Kocherlakota, a well-respected economist and former President of the Federal Reserve Bank of Minneapolis, in a Washington Post piece entitled “Markets didn’t oust Truss – the Bank of England did”. Kocherlakota’s view was that the Bank of England was responsible for the crisis, through “poor financial regulation and highly subjective crisis management”. Outside the UK chatterati, this view is widely supported.
The beef against the mini-budget was that it spooked the market. But virtually all of the policy announcements made by Kwasi Kwarteng on the day were not new; they had been pledged during the Truss campaign or — in the case of the energy price guarantee — confirmed shortly after her arrival in Downing Street.
Read more: It Was the Bank of England Wot Done It