This is no sterling crisis. It is a crisis of British capitalism caused by 40 years of underinvestment and deindustrialisation, exacerbated by chronic reliance on speculative bubbles and triggered by Liz Truss’s extravagant kindness to Britain’s wealthy.
While all eyes are on the fall of the pound, the real drama revolves around the Bank of England’s interest rate. Typically, a developed country’s exchange rate rises when its government announces its intention to borrow big. Foreseeing a rise in interest rates, speculators rush into the currency to take advantage. However, precisely the opposite happened after Kwasi Kwarteng’s (not-so) mini budget last week because of a dirty secret known to almost everyone: British capitalism is even more addicted to low interest rates than the United States or continental Europe.
In view of the UK’s high inflation (9.9 per cent), its record current account deficit (8.3 per cent of GDP) and its low foreign exchange reserves, the Bank of England cannot steady the gilt market, or the pound, by buying gilts – as it announced on Wednesday – or pounds. These desperate moves can only buy a little time. Before long, it will need to raise its base rate to at least 6 per cent to equilibrate money markets. But such a rate would kill the corporate zombies on which the British ruling class depends for its existence, not to mention the house price levels on which the Tories have built their electoral dominance. That’s why the pound’s slide is merely a symptom of a deeper crisis of
— source yanisvaroufakis.eu | Yanis Varoufakis | 29/09/2022