Dr Charles Read is an economic historian at the University of Cambridge. With his kind permission, we have reproduced his Twitter thread written in response to Liz Truss’s front page article in the Sunday Telegraph today.
For anyone reading Liz Truss’s mea culpa (£) in The Sunday Telegraph today, the idea Truss states that Kwarteng and the Treasury had not been warned of the budget’s risks to financial stability was not true.
On September 8th I gave a lecture to Treasury civil servants and sent a letter (and entire paper on the subject) to Kwarteng personally warning that any budget involving a fiscal stimulus that pushed up market interest rates risked financial instability and a financial crisis.
I pointed out that the risks in the financial system emerge when interest rates rise too fast and that Britain was at this point due to inflation rising very fast. Any fiscal action that made interest rates rose any faster would spell financial disaster.
I had pension funds and Liability-Driven Investing (LDI) in mind when I pointed out in the letter that the risks posed to the financial system lay outside the formal banking system, and that macroprudential regulation would not prevent the next crisis.
And I explicitly said that “Care should be taken so that the measures used to bring inflation under control do not cause unnecessary financial instability”, and the government would face political consequences if it did not take care.
Needless to say, the Truss government did not heed this warning, did not take care to avoid financial instability, and faced the political consequences, resulting in the shortest premiership in British history.
The mini-budget crisis last autumn was predictable, preventable & avoidable: the February 1847 budget also containing unfunded tax cuts and a borrowing spree for relief also caused a market panic and subsequent austerity measures to calm markets (as explained in my first book)*.
To claim that the Truss government was not warned of the risks to financial instability is highly misleading for the public and folk should be very cynical of what the rest of her article has to say for itself.
*Charles Read’s book The Great Famine in Ireland and Britain’s Financial Crisis, is about the consequences of the 1847 budget that resulted in austerity measures that led to significantly raising mortality levels in Ireland.