The Banana Monarchy & Voodoo Economics - Part 1 of 9

Kamikwazi Kwarteng Puts UK Economy Into
Suicidal Dive

Its common to refer to those troubled, poor countries whose economies struggle, and are hindered by corrupt and incompetent governments as banana republics. Britain, as we were reminded last week, is, however, still a monarchy. It is fast becoming a banana monarchy, and the economic agenda set out by Kamikwasi Kwarteng, is similar to the policies of those corrupt and incompetent governments, now having adopted the same Voodoo Economics adopted by Reagan in the 1980's that led to disaster in the US. And, consistent with the banana monarchy, and the voodoo economics, we also have around 1 million zombie companies, about to be destroyed, as a result of those policies and rising interest rates.

For months, traders in foreign exchange markets have been talking about the UK economy as, now, resembling that of an emerging economy, certainly in respect of the Pound. In the immediate aftermath of the Brexit vote, in 2016, the Pound dropped precipitously, from $1.45 to around $1.20. That showed the idiocy of all the talk of “taking back control”, as the international capital markets showed just who really does have control over a much weakened and isolated British economy. In the following years, as the prospect of actual Brexit receded into the distance, as Theresa May was unable to reach a deal she could get through parliament, and as it became clear that any deal would be one in which Britain remained subordinated to EU single market and customs rules, the Pound steadily recovered.

When Boris Johnson was led to capitulate to the EU, in his oven ready Brexit Deal, most visibly expressed in the Northern Ireland Protocol, the Pound recovered, almost to where it was in 2016, at over $1.40. But, as the Brexitories looked for populist support, by trying to renege on the deal they had just signed, the Pound again began to sag, reaching $1.32 by the end of December 2021. It has continued to fall since then, as Boris Johnson's government fell apart, and the prospect of an even more Brexitory government under Liz Truss came into view.

As Truss' new Chancellor, Kamikwasi Kwarteng, spoke from the dispatch box, on Friday, to give a budget speech that had all the hallmarks of a desperate government, seeking to boost the interests of its specific core of supporters, in what looked almost like a scorched earth strategy, of a government knowing its days are numbered, the Pound fell to $1.09, headed rapidly towards parity with the Dollar. The Cameron Tories used Liam Byrne's stupid quip about there being no money left, effectively, but the reality of this Brexitory government is that, not only will it have frittered all the money away, but it will have left the country in the clutches of what amounts to the same thing as pay day lenders!

Kamikwazi Kwarteng Puts £ Into Death Dive

Over the weekend Kamikwazi Kwarteng put the UK economy into an even steeper suicide mission, by doubling down on the rhetoric of more tax cuts and even higher debt and borrowing.  Showing just how much this strategy, in the interests of the reactionary petty-bourgeoisie that the Brexitories represent, is anathema to the interests of the ruling class, as soon as European markets opened this morning, the £ took another dive down to as low as $1.05, before settling just around $1.07, and UK government bonds crashed.  In Asian trade, overnight, it had fallen as low as $1.035, taking it to an all-time low, even below that during the period of economic chaos under Thatcher in the 1980's.  But, its not just against a strong $ that the £ is collapsing.  The € is also collapsing as EU imperialism is being broken on the wheel of its subservience to US imperialism, and the flagellation of its boycott of Russian energy supplies.  But, even against that weak €, the £ has collapsed to only €1.10.

The UK 2 Year Gilt rose 50 basis point to around 4.50%, the first time its been above 4% since 2010.  That represented a rise of around 12.5%.  But, all UK Gilts rose, by at least 25 basis points.  In conditions reminiscent of the last time the Tories wrecked the economy in 1992, and there was a Sterling crisis, government ministers refused to comment on the moves, leaving markets to look for the Bank of England to intervene, with probably a full 100 basis point rise in Bank Rate, to defend the £, only days after it last its interest rates!  This is the usual economic incompetence we expect from the Tories, but the Brexitories have raised it to new heights.

In a period of high and rising inflation, a collapsing Pound is the last thing the Brexitories want. It emphasises the point that “taking back control”, or “national self-determination”, promoted by liberals, in the age of imperialism, is a fantasy, as control rests with one bloc of imperialists or another, as Lenin and Trotsky described, more than a century ago. In Britain's case, stranded in mid-Atlantic, it means the invidious position of being subordinated to EU imperialism economically, as it depends on the EU for trade, whilst, also, being politically, militarily and strategically subordinated to US imperialism, whose stooge it has been for the last 80 years.

But, with Britain's economy highly dependent on imported, Dollar denominated commodities, such as energy, materials and food, the collapsing Pound causes even more imported inflation. The Brexitories were pleading with the Bank of England not to raise its interest rates, and threatening its independence, but, as the Pound collapsed, in the days after Truss kissed the Queen's ring, before she shuffled off her mortal coil, the Brexitories have been forced to insist that the Bank's independence is safe, or face being put in a similar position as Erdogan, in Turkey, where he has insisted the Turkish Central Bank cut rates, despite huge levels of inflation, and so where the financial markets have punished the Turkish Lira, sending Turkish inflation to even higher levels.

Forward To Part 2