A country should never be dependent on the kindness of strangers – hot money inflows from global bond markets to fund a bloated, irrational fiscal and current account deficit. This is a lesson Britain learnt the hard way in 1976 when HM Treasury was forced to go cap in hand to Washington for an IMF bailout and again on Black Wednesday, September 1992 when billionaire hedge fund manager George Soros broke the Bank of England and forced sterling’s humiliating exit from the ERM.
Even though Trussonomics was a license to print money for me shorting cable at 1.28 for a 1.145 target this summer. I am stunned by the new PM’s £150 billion energy package that will be funded by borrowing money in an unsettled gilt market where the yield on the 10 year note has risen by a ghastly 100 basis points in August alone.
Kattora Liz will be forced to beg for an IMF bailout for Britain after triggering the mother of all sterling crises and lead the Tories to predictable disaster in the next general election.
Hopefully, King Charles III will not share the sad fate of the two royal predecessors who share his name. Charles I lost his throne and his head in the English civil war. Charles II spent 12 years in exile at the court of the Sun King in Versailles while a junta of Puritan major generals under Cromwell ruled the sceptered isle, his kingdom by the silver sea.
Barclays estimates that the UK will be forced to increase extra gilt issuance by £250 billion in the next two years to fund the energy package. This insures Britain’s inflation nightmare will worsen as the CPI rises from its current 10% to 18% and gilt yields spike higher as offshore money flees Britain PLC in horror.
Britain’s current account deficit is 8.3% even now and sterling has fallen 15% against the US dollar in 2022 alone so I do not know what the PM in 11 Downing Street or her mandarins in Whitehall are smoking in their philosopher’s pipe but it is definitely not Marlboro Lights if they expect offshore bond markets to finance their fiscal insanity. It is no coincidence that gilt yields have soared at the fastest pace in two decades, the ultimate vote of no confidence in Liz Truss.
She has torpedoed the gilt market at the same time as the Bank of England plans to drain liquidity via shrinking its balance sheet and the UK economy slips into a vicious recession. Trussonomics ensures that a sterling crisis that could take cable well below parity is now inevitable. This is the time for big game hunting in Planet Forex has its gnomes howl for sterling’s blood.
Also published on Medium.
