“Truss’ed”

We look back to the latest UK political tragedy this week as Prime Minister Truss was forced to resign after just 44 days in office.

The humiliation was even greater when the British Daily Star tabloid launched a live stream of an unrefrigerated head of lettuce with a blunt question for the title: “Can Liz Truss outlast a lettuce?”. The vegetable obviously won this week. So should the lettuce be the new PM? After all, the UK already went through 4 PMs in 6 years…

Well, her consolation prize for all the stress and humiliation seems to be the GBP100+k annual pension she gained from 44 days of work, the fastest deal to reach retirement ever LOL.

Did she try to do too much in such a short time or were the planning and execution doomed to fail from day 1? All the grand ideas to jump start the economy with generous tax cuts and 2 years energy hike caps were essentially dead on arrival as there was no corresponding increase in government revenue to absorb these new expenses.

Someone forgot to tell her that the UK is no more the superpower it once was. Unlike the US, UK cannot just print more money to plug any deficit gaps anymore. With the recent Covid epidemic, all governments around the world have already flushed their systems with newly created liquidity to keep the economy afloat – America added 30% more new money in 2021 alone.

Truss thought that the shock therapy to kick start the British economy by going into deep deficit is a gamble worth taking. The market responded badly to these harebrained approaches by punishing the GBP currency and causing the Gilts (UK bonds) to crash dramatically.

This had a chain effect on the whole UK economy as British pensions are the main buyers of the government Gilts. Not only are they buying, they are also using the ones they own as collateral to buy more. The sudden 20-30% collapse in Gilt prices resulted in major banks issuing margin calls to the pension funds.

As the funds only own Gilts, the banks’ recourse is to force sell the pledged Gilts. This resulted in a tsunami of sell orders which made the situation worse. The central bank had to step in to start buying the Gilts for days afterwards to stabilize the markets and to restore calm.

All these could have been avoided if they had gotten a consensus of how the market could react before announcing the grand moves. Ironically, the person that lost the PM contest to Truss had correctly predicted and pointed out what would exactly happen during their PM debates months ago.

There is also a running joke that a new person by the name of Joris Bohnson might put his hand up for the newly vacant PM position LOL. Sunak probably has the highest chance of getting the job IMHO.

In politics nowadays, trying to rock the boat with big moves to change a broken system in a short time can be disastrous for the initiator. It would require a long process of small incremental moves to get to the final destination. This has resulted in inertia and political gridlocks which are the norm.

Look at America’s GOP and Democrat parties. Both just zone in on the anger and dissatisfaction to try to bring down the other side to make the opposition look bad. They should aim for the the good of the people and follow what the majority wants, instead of being held hostage by the minority. Social media amplifies the little voices that do not represent the majority, making it difficult to have constructive compromises.

There has to be a better way of governance and the UK had certainly shown the world that it’s system is clearly not working. It created chaos and uncertainty with the constant direction changes which are not carefully thought out and executed clumsily.