Surface Ripples

Checks and Balances

With the departure of the latest prime minister of the UK on 20th of October 2022, the world witnessed the concept of checks and balances in one of its purest forms.

A “mini-budget“ announced on 23 September 2022 ran into a solid wall of opposition from financial markets and criticism from financial bodies respected around the world.

The result was a sell-off of gilts (UK Treasury finance bills) and a looming rise to unprecedented levels of interest rates to counter V inflationary pressures that would result. As the Economist observed in its 22nd October 20 222 edition, “Mr Kwarteng (Chancellor of the Exchequer/Finance Minister) declined to show it his draft budget, which threw monetary and fiscal policy into conflict: he just opened the taps and declared it Andrew Bailey’s (Head of the Bank of England) job to deal with the resulting rise in inflation.“ suffice to say, Mr Kwarteng did not last long after that. He was sacked on 14 October 2022.

A new chancellor/minister of finance has been appointed. He trashed the policies that caused the economic ruckus and financial markets stabilised as a result. 

There can be few better illustrations of the “checks and balances” system that prevails in democracies and financial and free markets. The downside may be that it may be the markets that have control over free democracies rather than governments themselves. In this case, I prefer to take the view that the proposals made on 23rd October would have resulted in incredible economic hardship for the UK and its people, let alone provoked massive inflation which would have resulted in even more increases to the cost of living exacerbated by the conflict in Ukraine. Clearly something had to be done and it was. Brutally.

If nothing else, we have all been presented with a lesson in the danger of “hubris” - excessive pride in one’s own intellect and capabilities, leading to one’s downfall. The Chancellor has gone. The prime minister has gone. I suspect that, at the next general election in the UK, the governing party will also go.

I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With a wealth of international experience in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

Labels: Financial, Leadership, Strategy

posted by William Martin @ 09:31