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A month into her appointment as Prime Minister of the United Kingdom, Liz Truss faces a major crisis. The British pound has plummeted as financial markets reacted harshly to Truss’s plan to enact huge tax cuts that primarily benefit the highest earners, as well as a promise to boost government spending. To say the plan was negatively received would be a major understatement. Straight Arrow News contributor Peter Zeihan says as the pound plummets, the U.K. has an even bigger problem: Figuring out how to address its position as a fading financial power.
Excerpted from Peter’s Oct. 3 “Zeihan on Geopolitics” newsletter:
Last week (when the following video was recorded) saw the British pound get pummeled by global markets following the announcement of the Truss government’s “mini-budget.” The Bank of England intervened to help support the currency while newly-instated Prime Minister Liz Truss appears to have taken a few days to avoid the media spotlight, but the episode has eroded whatever support her weeks-old government had hoped to cobble together. This is a short term problem, however, that pales in comparison to the larger challenge facing the United Kingdom, its economy, and ultimately its place in the world. London emerged as a financial hub for a vast, global empire. After the World Wars, London survived as a clearing house of sorts for the broader EU–particularly between the EU and external economies, such as the United States and Asia. Brexit did away with all of that. And the British still haven’t figured out what comes next. So this market route is nowhere close to being over because we’re finally seeing, five years on, because the Brits have been unable to figure out what’s next, that the markets are starting to finally treat Britain as what it has always loathed: A middle power.
And in that sort of situation, the amount of financial drainage that’s gonna come from the system is just absolutely mammoth. So unless the Truss government or its successor is able to hammer out some sort of post-European Union trade system with someone, we are only at the very beginning of a very long road down.
