United Kingdom Fallout And The Not-So-Mini Budget

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Fiscal policy meets monetary policy

Market instability is bad. Why? Because instability causes uncertainty. Uncertainty is bad for global investment and if it is bad for investment it is bad for growth, as Adam Tooze says.

The U.K. government came out with the mini-budget which was tax cuts and lots of spending (fiscally loose) which ended up causing government bonds (gilts) to collapse - and The Bank of England did not do an emergency hike in response - got so bad that the IMF told them to bugger off. People were like wow that’s insane to be doing essentially fiscal easing in the middle of an inflationary crisis - but it also brings worries of bond supply due to selloff. This collapse resulted in a liquidity crisis in Liability Driven investment funds (largely invested in gilts) which are leveraged to the gills - and mostly owned by pensions - pensions were facing collateral calls on long-dated, liability-driven investment funds. Bank of England had to intervene.

Video Length: 00:05:04

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Samantha Carter 1 year ago Member's comment

Great video, thanks.