The speed with which UK financial markets fell into dysfunction this week is astonishing. The country’s finance minister announced on Friday an unusual budget combining high spending commitments, generous tax cuts and an uncorroborated assertion that these would lead to a new era of 2.5% annual growth.
The UK hasn’t been close to that since the easy borrowing days in the run up to the great financial crisis.
Back then, it was financed by abundant taxes from a swollen industry of banks declaring fake profits from dealing in synthetic products, often with virtual customers that were really themselves.
Those days are long gone and they are not coming back, even if bankers’ bonus caps are removed. Bank shareholders won’t allow a return.
By taking the same dismissive attitude to the international lenders on which it depends as it does to parliament and the electorate and not bothering to show its workings, the government caused the currency to fall and sovereign bond yields to rise sharply.
On Monday and Tuesday, markets in long-dated government bonds came close to collapse in a way that threatened immediate contagion to the real economy.
On