It is obvious that the decision of the central bank is behind the current sale of shares. At the same time, central banks have the option to stop this sale at any time. The fact that it is wanted by central banks is probably the worst sign of the entire crisis. The method of solving the crisis therefore depends on the will of the central bank. Of course, these are not all-powerful, but active but systemic decisions. At each meeting, the Fed chooses between stopping inflation or recession and falling stock indexes.
So far, the Fed is clearly signaling that it has chosen inflation over recession. However, this decision is not forever and the Fed can change it at any time. And this change does not necessarily mean lowering interest rates, it can also take the form of foreign exchange interventions, targeted bond purchases or quantitative easing. There are many options and one of them has been outlined by the Bank of England.
The economy of Great Britain is under pressure for a long time. Great Britain is plagued by the typical evils of our time: high inflation (9.9%), low GDP growth (0.2%) and high government debt (95.9%) . It is not surprising that British Prime Minister Boris Johnson took the brunt of such a bad situation, who had to resign. He was replaced by Liz Truss, also from the Conservative Party. The British Prime Minister will thus continue on the same economic course, which will be different from that of Labour, and we could very remotely call it right-wing.
Liz Truss decided to take two major steps. On September 23, 2022, it decided to abolish the higher taxation of rich people who earn more than 170,000 euros per year. The move will cost the royal coffers 50 billion euros. The second step is direct support for the British, who are troubled by the energy crisis. The move is expected to cost the UK tens of billions of pounds. In addition, there is a risk that the bill for energy assistance will increase over time, since energy prices will not decrease overnight.
From my point of view, the decision to collect smaller taxes is commendable and correct in principle. But every politician must consider the context in which his economy is situated. If he expects increased expenses, it is not appropriate to get rid of income. Especially in a situation where interest rates are rising.
Indebtedness of any state will become significantly more expensive. We now have a similar problem in the Czech Republic.
Abolishing the super gross wage is the right thing to do in the sense that people will be left with more money. But this step makes no sense if the public finances are not balanced.
Moreover, at a time when we are struggling with inflation fueled by wage growth, this is a really bad decision. The abolition of the super-gross wage is one of the possible explanations for why inflation grew more here than anywhere else in Europe. But let's go back to Great Britain again.
The Bank of England together with the Fed started to tighten monetary policy earlier than, for example, the ECB. Thus, Great Britain could have a certain lead over Europe. However, we do not observe this. The lag was noticeable mainly in the last weeks. The first nail in the British economic coffin was a 50 basis point increase in interest rates. At the same time, markets expected an increase of at least 75 basis points, and given the problems of the British economy, even a rise of 100 basis points would be well received.
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