The Daily Parker

After Chancellor Kwasi Kwarteng's shocking mini-budget announcement last week, worldwide markets (and the IMF) have clobbered Sterling and the Conservative government in general. Today the Bank of England intervened in bond markets to try undoing the worst damage:

The Bank will start buying government bonds at an "urgent pace" to help restore "orderly market conditions".

So called Liability Driven Investment funds - which support defined benefit pensions schemes - were facing a collapse in the value of the bonds they hold, which in turn could have forced them to rush to sell other assets, sparking yet more market panic.

The Bank has already said it will "not hesitate" to hike interest rates to try and protect the pound and try and stem surging prices. Some economists have predicted the Bank of England will raise the interest rate from the current 2.25% to 5.8% by next spring.

Despite the Bank's action, the pound continued to fall with some analysts warning it could even reach parity with the dollar.

"What today shows us, is that the market doesn't see this as a problem that just the Bank of England can clean up," said Jane Foley, a currency strategist at Rabobank. "This is just firefighting".

Economist Tony Yates, formerly of the Bank, believes the markets expect a reversal to the Tories' new policy, either as a volte-face soon or at the next election:

The combination of falling sterling and rising rates is particularly damning. Normally a country embarking on a monetary-policy contraction to combat an inflationary surge—imparted by a fiscal loosening—might be expected to see a rise in its exchange rate. But the government’s move has shaken markets’ faith in its fiscal competence and its grasp of macroeconomic realities. That loss of confidence produced the exchange-rate fall.

Mr Kwarteng’s delusions will come to an end. The worst return to reality would see Britain slide into a full-blown financial crisis. In this regard the fall in sterling is less important than the rise in the cost of government finances. That is partly because investors are demanding a premium: they expect to compensate themselves for the upheavals of recent days and the uncertainty they have introduced. (The economists Paul Krugman and Dario Perkins have called this a “moron risk premium”.) In a doomsday scenario this premium generates a self-fulfilling vicious cycle. It raises spending (on interest payments on existing government debt) and lowers revenues (a dearth of confidence will lead to less economic activity). This will raise the “moron premium” further, worsening the funding gap. And so on.

Ironically the fiscal plans of a prospective left-wing government are providing the confidence anchor for the right-wing government it is expected to defeat in the next election. And the more this is expected to happen, and the sterner and clearer Labour’s plans become, the less awful the crisis will be in the meantime. The stupidity of Mr Kwarteng’s policy and its unpopularity are helping to limit the damage done by it. Markets believe that things won’t carry on as they are indefinitely.

Of particular concern, most mortgages in the UK have floating rates, unlike here in the US where fixed rates are most common. So the rising interest rates and declining pound will start hitting mortgage borrowers hard, just when gas prices blow up later this autumn.

I only wish I had a few extra bucks right now for a trip to the Ancestral Homeland. Given the current Tory resistance to change in the face of direct evidence, though, I suspect the exchange rate will remain pretty favorable to Americans through the winter.

The pound fell to $1.033 in early trading this morning before rebounding to the still-ahistorical $1.08 by mid-day:

Chancellor of the Exchequer Rishi Sunak hasn't had the job for three weeks and he's already tanked British currency markets. The Guardian's economics editor Larry Elliott calls the mini-budget that started this catastrophe a "schoolboy error:"

Part of the story of the pound’s weakness is a function of dollar strength but that does not explain why sterling has fallen so rapidly since the end of last week. There are three UK-related factors behind the fall.

First, once a currency hits the skids it is hard to stop it. Momentum trading took over in the aftermath of Kwasi Kwarteng’s mini-budget and it has proved hard to halt.

Second, Kwarteng committed a schoolboy error by pledging further tax cuts in a full budget planned for later this year. If the markets are worried about the state of the government’s finances and the increase in borrowing needed to fund your plans, it is not the wisest course of action to add to those concerns. Kwarteng’s inexperience has been exposed.

Third, the financial markets don’t really know how the Bank of England will respond to the events of the past three days. Threadneedle Street raised interest rates by half a point last Thursday but there has been speculation of an emergency meeting of the Bank’s monetary policy committee as early as Monday.

The Economist expands:

Five-year British yields have risen from 1.5% at the beginning of August to above 4.5% now: an increase of about one percentage point in just two days.

That combination of rising yields and a falling currency has prompted discussions of a broader crisis of confidence in Britain’s economy and its assets. The government’s tax cuts will mean a growing budget deficit and higher public-debt levels in the future. Britain’s current-account deficit reached 8.3% of gdp in the first three months of the year, the deepest in modern history, driven by surging energy prices. A gaping current-account deficit is something that often worries those who invest in developing economies.

But in other ways Britain is an unusual candidate for a currency crisis. Its exchange rate is flexible, meaning that there is no link to another currency, as was the case when Britain was forced out of the European Exchange Rate Mechanism in 1992. Its financial markets are deep and sophisticated. It has minimal debt denominated in foreign currencies, and its central bank is independent from the government.

The most simple explanation for the sell-off, then, is that investors do not believe that the government’s tax cuts will lead to the real economic growth Mr Kwarteng wants. Instead, they foresee higher inflation that the Bank of England will be unwilling to fully offset with interest-rate increases. Currency analysts at the Bank of America suggest that a combination of Britain’s changing fiscal stance and the long-running effects of its decision to leave the European Union have led to a profound rethink of the pound by investors. That leaves the currency more vulnerable in the years ahead.

I was joking with friends that I should hop over there to finally get a pint and a bap for under $10, until one of them pointed out that it would be a $1210 pint and bap given airfares and hotel costs. Ah, well. It doesn't look like the pound will recover before the end of the year, so maybe Christmas in London again? Any bets on whether PM Liz Truss will have to call an election before then?

UK Chancellor of the Exchequer (equivalent to the US Treasury Secretary) Kwasi Kwarteng (Cons.) announced significant tax cuts along with £72 billion in new spending to forestall higher energy bills this winter. Unfortunately, this massive stimulus comes during some of the highest inflation the UK has seen in a generation, estimated to be nearly 10% annualized as of this week.

Consequence? This, as of just a few minutes ago:

Sterling hasn't gone below $1.10 since 1985, and it probably won't again during my lifetime.

The Economist has no confidence in the scheme:

[Prime Minister Liz] Truss’s attempt to emulate the Gipper’s success is doomed. To see why, consider the currency markets. Reaganomics was accompanied by a strengthening dollar. So were Donald Trump’s tax cuts in 2018, which also happened alongside monetary tightening.

In Britain, though, the pound has slumped by 16% against the dollar in 2022.

As a result, the BOE will get no help from currency markets as it offsets Ms Truss’s fiscal stimulus with tighter monetary policy. Instead more expensive imports are boosting inflation. That is a big headache for an economy that depends on trade as much as Britain’s does.

Ms Truss’s cheerleaders seem to have read only the first chapter of the history of Reaganomics. The programme’s early record was mixed. The tax cuts did not stop a deep recession, yet by March 1984 annual inflation had risen back to 4.8% and America’s ten-year bond yield was over 12%, reflecting fears of another upward spiral in prices. Inflation was anchored only after Congress had raised taxes. By 1987 America’s budget, excluding interest payments, was nearly balanced. By 1993 Congress had raised taxes by almost as much as it had cut them in 1981. If Britain’s government does not correct its course in the same way, the result will be more conflict between monetary and fiscal policies—and a risk that inflation becomes entrenched.

On the other hand, lower costs in the UK combined with the usual slowdown in tourism across the Atlantic in autumn have made this possible on a 21-day advance purchase:

If only I weren't moving or performing in an opera in the next eight weeks, I'd buy a ticket to London right now.

It happens every September in the mid-latitudes: one day you've got over 13 hours of daylight and sunsets around 7:30, and two weeks later you wake up in twilight and the sun sets before dinnertime. In fact, Chicago loses 50 minutes of evening daylight and an hour-twenty overall from the 1st to the 30th. We get it all back in March, though. Can't wait.

Speaking of waiting:

• Buckingham Palace just warned people that the queue to see Queen Elizabeth's coffin has a 24-hour wait at the moment, so...dress warmly!
• Drivers on the New Jersey Turnpike will have to wait even longer to get into the Holland Tunnel after a planned $4.7-billion project adds even more induced demand.
• Via Bruce Schneier, Uber has had a data breach. No, scratch that—Uber lost control of its entire computing universe, because the company culture of cheapness and bullshittery extends to their IT security as well.
• Ronald Brownstein finds this year's election...really weird.
• David Brooks asks, why do we not have a strategy to defeat the XPOTUS?
• Matt Ford points to Florida governor Ron DeSantis (R) as the future of Republican campaigning: trolling the libs.
• The Cook County State's Attorney has charged two Chicago cops with multiple felonies after they shot an unarmed man in Pilsen and lied about it.

Finally, Fareed Zakaria visited Kyiv, Ukraine, to learn the secret of the country's success against Russia.

Just a few before I take a brick to my laptop for taking a damned half-hour to reformat a JSON file:

• The King has a long history of meddling in architecture and urban planning, with the divisive planned community of Poundbury, Dorset, his largest project to date.
• Meanwhile, in the US, architect Adam Paul Susaneck argues that cities need to remove highways that segregate communities. (Plus they're ugly and they cause the traffic they're built to alleviate, but that's another argument.)
• The Queen's death has gotten a lot of people's Irish up over the colonial history she oversaw as monarch. (I even decided to pause someone on Facebook for a month for dancing on her grave.)
• Developers found three time capsules while redeveloping Chicago's Tribune Tower this past year, one of which apparently contained a ball from the 1919 World Series.
• In a case that will make school administrators think thrice about joining student protests, Oberlin College in Ohio has agreed to pay a local bakery $37 million after a jury found the college had endorsed students labeling the bakery "racist."

Oh, good. My laptop has finished parsing the file. (In fairness it's 400,000 lines of JSON, but still, that's only 22 megabytes uncompressed.) I will now continue with my coding.

With the death of Queen Elizabeth II, the British National Anthem has changed back to "God Save the King" for the third time in 185 years. In other news:

• The Guardian explains Elizabeth's funeral and other events that will take place over the next 10 days.
• James Fallows takes a second look at President Biden's speech from last week, in the context of the predictable reaction cycle about anything he does.
• Dana Milbank doesn't worry the MAGA folks want a Mussolini, since some of them keep going on about having a Caesar instead.
• Tina Nguyen wonders what Liz Cheney actually plans to do now.
• Matt Ford says, welp, "there are 'Trump Judges' after all."
• The Economist projects that the Democratic Party will keep its majority in the Senate come January, and probably even pick up a seat.
• Why is the United States the deadliest country in the OECD?
• Via Schneier, Facebook admitted it has no earthly idea what data it has on anyone.

By the way, the UK has a vacancy for the post of Prince of Wales, in case anyone would care to apply. I think we can bet on nepotism, though.

Her Majesty Queen Elizabeth II has died aged 96:

Queen Elizabeth II, the longest-reigning monarch in British history, has died.

Prince Charles, heir to the throne since the age of three, is now king, and will be officially proclaimed at St James’s Palace in London as soon as practicably possible.

Flags on landmark buildings in Britain and across the Commonwealth were being lowered to half mast as a period of official mourning was announced.

As Queen of the UK and 15 other realms, and head of the 54-nation Commonwealth, Elizabeth II was easily the world’s most recognisable head of state during an extraordinarily long reign.

What a week in the UK.

The UK Conservative Party has elected Liz Truss its new leader, making her the new Prime Minister. Just over 81,000 of the 67.22 million citizens of the UK voted for her, giving her even less of a mandate than the last two PMs had:

The foreign secretary, who won 81,326 votes (57.4%) of Tory members to the former chancellor’s 60,399 (42.6%), takes over from Boris Johnson, who was ousted by his own MPs earlier this summer.

Britain’s fourth Tory prime minister in six years declared “we will deliver, we will deliver and we will deliver” on the many challenges facing her government, including the state of the NHS.

Significantly, Truss appeared to rule out a snap general election, telling the audience in central London that she would “deliver a great victory for the Conservative party in 2024”.

The Economist wonders how long she'll last:

Her free-market instincts are at odds with the need to intervene to navigate an immediate cost-of-living crisis. Household gas and electricity bills will jump by 80% in October; businesses are seeing even bigger spikes. By January 2025 she must contest a general election in which she will face the judgment of a deeply dissatisfied public. She inherits a country in dismal spirits: 69% of Britons, including 60% of Conservative voters, agree that the country is “in decline”, according to polling by Ipsos for The Economist. And the party she now leads has grown insurrectionary: it has deposed her two immediate predecessors and is unenthused by her. She will bash at the walls like a wasp in a bell jar.

Ms Truss’s remedy for Britain’s economic ills is a Reaganite mixture of deficit-financed tax cuts and regulatory reform. She proposes low-tax zones with relaxed planning laws, and wants to keep the headline corporation-tax rate at 19% to pull in foreign investment.

To her critics, Ms Truss offers only a mimicry of Thatcherism: all the aesthetics, little of the insight. She may have the furs and the aphorisms, they say, but she abandoned her support for planning deregulation, the single most-obvious supply-side reform, as soon as it became clear that Tory activists wouldn’t wear it. Her pledge to scrap all unnecessary eu laws by the end of 2023 may sound reassuringly radical, but it is divorced from the fine-grained work of effective regulation.

Ms Truss is the fourth roll of the dice for a party squinting hard, searching for a simulacrum of the woman who turned Britain around before. The country she now leads may well be looking for something else entirely.

It is interesting, though, that Truss is the third woman to have her finger on Britain's nuclear button, while 39 of the 40* people elected President of the US have been white men. How's that working out for us?

* John Tyler, Millard Fillmore, Andrew Johnson, Chester Arthur, and Gerald Ford were never elected president.

Today is India's 75th anniversary as an independent nation after the UK essentially abandoned it after World War II. The Guardian looks at how much—and how little—has changed:

The attack on Salman Rushdie shone a light on where Pakistan and India, both now 75 years old, share common ground. Amid worldwide outrage, both governments were conspicuous by their silence.

The silence came from different roots. Some of the first riots after the publication of Rushdie’s The Satanic Verses were in Pakistan and violent extremism is still very much part of the country’s political life.

In India’s case, it was because Rushdie has been a critic of the prime minister, Narendra Modi, and annoyed his supporters, who the author himself had dubbed the “Modi toadies”.

Intolerance of free speech is an area in which India is coming to be more like Pakistan as both countries celebrate their 75th birthdays. Under Modi’s Hindu nationalist Bharatiya Janata party (BJP), political opponents are increasingly likely to be arrested and beaten, and the press and judiciary are under increasing political pressure. India’s democracy has been downgraded to “partly free” by the democratic advocacy group Freedom House, a category India now shares with Pakistan.

Writers Pankaj Mishra and Ali Sethi have had enough of religious fighting between the two countries:

In many ways, the binary constructs of “Indian” and “Pakistani” embody the desolate logic of the event that 75 years ago split British-ruled India in two: the partition, attended by massacres, rapes and large-scale dispossession. Botched products of Britain’s imperialist skulduggery – and fierce struggles for personal power between leaders of the anti-imperialist movement – the new nations were locked right from their birth into military conflict; their pitiless “identity politics” ranges today from intellectual forgeries in history textbooks to the lynching of religious minorities.

The political history of their 75 years – marked by several wars, arms races, anti-minority pogroms, authoritarian rule, and minimal protections for the poor and weak – provokes mostly despair and foreboding. While Pakistan nears economic collapse, Indian fantasies of becoming a superpower lie shattered amid shrivelled growth and ecological calamity. Demagogues in both nuclear-armed countries treacherously exploit the resulting anger and disaffection. While claiming to fulfil the broken promises of modernity, they mobilise the thwarted energies of individual and collective aggrandisement into a mass politics of fear and loathing.

As we commemorate the 75th anniversary of partition, it is abundantly clear to us that politics in India and Pakistan are doomed to keep forging a history of irresolvable enmity between Hindus and Muslims. It is also clear that any reasonable hope for peace between these two nuclear powers cannot rest on a political and economic breakthrough alone. We can avoid an apocalyptic scenario only if we acknowledge and consolidate, or at least not squander, the linked cultural and spiritual inheritance of the two countries. The great truth it underscores repeatedly – of the plural and interdependent nature of human identity – is the best remedy for our rancorously polarised worlds.

Imagine what the world would look like today had the British not drawn arbitrary lines through great chunks of it.

This evening I finished psychologist Bill Eddy's Why we elect narcissists and sociopaths and how we can stop. It turns out, we just need to be rational!

OK, so, that's not likely. But Eddy does lay out the obvious: we need to stop electing narcissists and sociopaths. We also need to watch out for sick politicians dividing us into 4 groups that could work together but don't: Loyalists, Resisters, Moderates, and dropouts. The three groups who don't have automatic loyalty to the narcissist in question always outnumber the Loyalists.

In other words, when a politician says "I alone can fix it," the correct response is to ensure he (it's always "he") never holds any power. Because he will always try to increase his power to the detriment of everyone around him. And he will never fix it.