Thread by @EconCharlesRead

For anyone reading Liz Truss's mea culpa in The Sunday @Telegraph today, the idea Truss states that Kwarteng and the Treasury had not been warned of the budget's risks to financial stability was NOT TRUE. /1

On September 8th I gave a lecture to Treasury civil servants and sent a letter (and entire paper on the subject) to Kwarteng personally warning that any budget involving a fiscal stimulus that pushed up market interest rates risked financial instability and a financial crisis /2

I pointed out that the risks in the financial system emerge when interest rates rise too fast and that Britain was at this point due to inflation rising very fast. Any fiscal action that made interest rates rose any faster would spell financial disaster /3

I had pension funds and LDI in mind when I pointed out in the letter that the risks posed to the financial system lay outside the formal banking system and that macroprudential regulation would not prevent the next crisis /4

And I explicitly said that "Care should be taken so that the measures used to bring inflation under control do not cause unnecessary financial instability" and the gov would face political consequences if it did not take care /5

Needless to say, the Truss gov did not heed this warning, did not take care to avoid financial instability, and faced the political consequences, resulting in the shortest premiership in British history. /6

The mini-budget crisis last autumn was predictable, preventable & avoidable: the February 1847 budget also containing unfunded tax cuts and a borrowing spree for relief also caused a market panic & subsequent austerity measures to calm markets (as explained in my first book) /7

To claim that the Truss gov was not warned of the risks to financial instability is highly misleading for the public and folk should be very cynical of what the rest of her article has to say for itself /8

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