“The military don’t start wars. Politicians start wars.”
Get your Free
financial review
David Cronenberg’s 1983 chiller ‘The Dead Zone’ still has a claim as one of the best screen adaptations of a Stephen King horror novel, second perhaps only to Stanley Kubrick’s 1980 masterpiece, ‘The Shining’. Schoolteacher Johnny Smith (Christopher Walken) emerges from a terrible road accident and coma with the power of second sight. A chance meeting with Senatorial candidate Greg Stillson (Martin Sheen) results in a terrifying vision of the near future, in which Stillson has become the President, and gives rise to the following exchange as part of that vision:
President Stillson: Do it, General.
General: You’re insane. I won’t.
President Stillson: Do it! You’ll go down in history with me!
General: As what? The world’s greatest mass murderers?
President Stillson: You cowardly bastard!
You’re not the voice of the people!
The people speak through me!
It came to me while I slept — my destiny.
I must get up now and fulfill my destiny!
Put your hand on that [scanning screen], or I’ll hack it off!
Do it!
General: May God forgive me.
President Stillson: Congratulations, General.
Sonny: Complete the sequence, Mr. President.
President Stillson: My destiny.
Thank you, Sonny.
Let them come up.
Advisers: Mr. President, we have a diplomatic solution.
President Stillson: Mr. Vice President, Mr. Secretary,
the missiles are flying.
Hallelujah. Hallelujah.
Whoever is tired of 2026 is tired of life. Not content with gifting us with the (still only partial, and heavily redacted) Epstein Files, which point the finger at the complicity of multiple philanthropath families including the houses of Gates, Rothschild and Soros in a succession of deeply disturbing-looking programmes involving experimental medical procedures, and ever more restrictive digital, social and monetary control, we now have a new Middle Eastern war to contend with, which at the time of writing threatened to escalate in inevitably unforeseeable directions. On the topic of Epstein, the former investment banker and US Assistant Secretary of Housing and Urban Development, Catherine Austin Fitts, gives a bravura interview with Tucker Carlson that you can watch here. Also well worth following, especially for meticulous Epstein analysis: the Substack accounts of Sayer Ji and the anonymous Escape Key. The latter’s recent coverage of how the ill-starred Liz Truss and Kwasi Kwarteng, for example, were stitched up by the Deep State, the OBR and the Bank of England is magisterial:
“On 23 September 2022, Chancellor Kwasi Kwarteng announced £45 billion in unfunded tax cuts1. Within six weeks, both he and his Prime Minister had been removed from office2.
“The story most people heard was simple: Truss and Kwarteng made reckless decisions, the markets panicked, and the Bank of England had to step in to clean up the mess.
“But if you look at what actually happened, a very different picture emerges.
“The crisis wasn’t actually caused by the tax cuts. It was caused by a risky financial arrangement that had been quietly building inside the UK pension system for years.
“For over a decade, the Bank of England had kept interest rates close to zero. That created a serious problem for pension funds. Pensions need to pay retirees, and with interest rates so low, safe investments weren’t earning enough. So pension funds turned to a complex strategy called Liability-Driven Investment, or LDI3. In simple terms, they used borrowed money to make bigger bets on UK government bonds — known as gilts. The gilts themselves were used as a deposit against the borrowing, much like a house serves as security on a mortgage.
“This worked fine — as long as the price of gilts stayed steady. But if gilt prices ever dropped sharply, the banks who had lent the money would demand more security. In financial terms, that’s called a margin call.
“This trick is not new. In 1720, a Scottish financier called John Law ran what became known as the Mississippi scheme in France4. The basic structure was the same: money was borrowed to buy shares, and the shares were used as security to borrow more money to buy more shares. The whole thing was circular — the asset backing the loan was the same asset being bought with the loan. When confidence broke, everyone tried to sell at once, prices collapsed, and France’s economy was destroyed for a generation..
“By the time Truss entered Downing Street, UK pension funds had built up roughly £1.5 trillion in these leveraged positions. And all of it depended on gilt prices not falling too fast5.
“After the 2008 financial crisis, the government gave the Bank of England direct responsibility for spotting exactly this kind of systemic risk. The Prudential Regulation Authority was created inside the Bank in 20136, along with a Financial Policy Committee whose entire job was to identify threats to financial stability7. The Bank had held this oversight role for nearly a decade by 2022. During that decade, this enormous vulnerability grew unchecked.
“The Bank either missed it or saw it and did nothing. Either way, the bomb was built on the Bank of England’s watch — and it was the Bank of England’s job to stop it.
“To understand why things blew up so fast, you need to understand what the government skipped.
“In 2010, the government created the Office for Budget Responsibility8 — the OBR. Its original job was fairly simple: provide an independent check on the government’s spending plans. Are the numbers realistic? Can we afford it?
“But over the following twelve years, the OBR quietly became much more powerful. By 2022, no budget or spending plan was taken seriously by the financial markets unless the OBR had signed off on it first. It was no longer just a forecaster offering a second opinion. It had become a gatekeeper. If the OBR hadn’t blessed your budget, the markets treated it as not credible — almost per default.
“When Kwarteng announced his tax cuts without an OBR forecast alongside them, he wasn’t just ignoring a tradition. He was trying to go around the gatekeeper — to make major fiscal policy without first getting it stamped as acceptable by the institution the markets had come to rely on. In the system as it had been built over the previous decade, that simply wasn’t allowed.
“The Spark
“The markets reacted immediately. Traders expected the tax cuts to push inflation higher, which meant the Bank of England would have to raise interest rates aggressively in response. That expectation alone was enough to send the price of government bonds — gilts — falling. And as gilt prices fell, the margin calls on those massive pension fund bets started firing.
“Then, within just four days, the International Monetary Fund publicly told the UK government to rethink its tax plans9. This kind of public dressing-down almost never happens to a major economy like Britain. The IMF normally reserves that treatment for developing countries on the brink of a debt crisis. The message was unmistakable: the UK government had crossed a line, and the world’s most powerful financial institutions were willing to say so openly. For the Bank of England, this was both permission and a tailwind.
“What happened next was a chain reaction. The pension funds got hit with margin calls — demands for more security — but they didn’t have the cash to cover them. So they had to sell the only thing they could sell quickly: their gilts. But thousands of pension funds were all trying to sell gilts at the same time, which drove gilt prices down even further. That triggered even more margin calls, which forced even more selling, which drove prices down again. It was a vicious circle, and it was completely automatic.
“By the morning of 28 September, several of Britain’s largest pension funds were reportedly just hours away from running out of money entirely10.
“The Fire Brigade and the Arsonist
“On 28 September, the Bank of England stepped in. It announced an emergency programme to buy up to £65 billion in government bonds, with the aim of stopping the death spiral in the gilt market11.
“The numbers here are worth pausing on. The government’s tax cuts — the policy that everyone said was so dangerous it had to be scrapped — were costed at £45 billion, spread over several years. The Bank of England’s emergency rescue of the pension funds’ risky bets — bets that had been allowed to pile up under the Bank’s own supervision — came to £65 billion, pulled together in two weeks.
“The system spent more money bailing out the problem it had failed to prevent than the government had proposed to cut in taxes.
“But at the same time the Bank was buying gilts to stop the crash, it had already announced plans to start selling gilts from its own stockpile in early October. This was part of quantitative tightening — essentially the Bank offloading bonds it had bought in previous years. Although the Bank delayed these sales because of the crisis, the markets already knew they were coming. Traders understood that the Bank of England was about to become a major seller of the exact same asset whose falling price was causing the crisis.
“There was also a simpler tool available. The Bank could have called an emergency meeting to adjust interest rates — a standard move in a financial emergency, and one that would have helped calm the markets. It chose not to12. Instead, it let pressure build until the next scheduled meeting in November. By not using the normal tool for this kind of situation, the Bank made sure that all the stress in the system went straight into the gilt market — and straight into the pension fund time bomb underneath it.
“So take a step back and look at what the Bank of England was doing all at once.
- It was pushing gilt prices down through its announced selling programme.
- It was buying gilts in an emergency to stop the crash it was partly making worse.
- It was refusing to use the standard interest rate tool that could have relieved the pressure.
- It had set a hard deadline on its emergency rescue — 14 October, no extensions.
- And it was publicly telling the government to sort the mess out.
“Governor Andrew Bailey warned pension funds — and through them, the government — that they had ‘three days’ to get it done13.
“By putting a countdown clock on the survival of Britain’s pension system, the Bank left the Prime Minister with no room to move. The message could not have been clearer: reverse your policy, or we stand back and let it all burn.
“The Chorus
“Within hours of Kwarteng’s statement, and before any new economic data actually existed, the media had already made up its mind. The Financial Times, the BBC, Sky News, the Telegraph — they all reached the same conclusion almost instantly: this budget was reckless, ideological, and dangerous14. No one had yet run the numbers. But the verdict was already in.
“This mattered enormously, because traders read newspapers too. The narrative that the budget was irresponsible didn’t just reflect market sentiment — it helped create it. Traders sold gilts not only because they expected higher inflation, but because every major news outlet was already telling them the policy was doomed. A government that might have survived a rough few days in the bond market instead found itself facing a sell-off amplified by a media that had declared the budget dead on arrival.
“Over decades, the financial press and the broadcast media had absorbed the same ideas about what counts as responsible fiscal policy — the same framework the OBR was built to enforce. Those ideas had become instinct. When a government stepped outside that framework, the reaction was instant and unanimous — because everyone in the relevant professional class had been trained to see the world the same way.
“The media didn’t explain the mechanics of the LDI crisis to the public15. It skipped straight to the verdict. And the verdict was exactly the one the institutional system needed.
“The Outcome
“The government caved. Kwarteng was sacked on 14 October16. Truss reversed the tax cuts, then resigned herself on 25 October17. She was replaced by Rishi Sunak, with Jeremy Hunt as Chancellor — both of whom immediately went back to the old rules: defer to the OBR, work with the Bank of England, and raise taxes to balance the books.
“What the episode proved is worth spelling out clearly. An elected government in Britain can only set tax and spending policy if it first gets approval from the OBR, fits within the Bank of England’s plans for interest rates, and satisfies the financial markets — whose own models are built around what the OBR and the Bank say. There are three gates, and every budget has to pass through all of them. Each of those gates was built over the preceding decades by unelected institutions, not by voters.
“A government that tried to go around those gates found out that the gates themselves were the weapon. The mechanism that destroyed the Truss government wasn’t the tax cuts — it was what happened when an elected Prime Minister tried to make policy without institutional permission.
“The Ratchet
“After the crisis, Parliament’s Treasury Committee investigated what had gone wrong with the pension funds. Their conclusion was damning18. The Bank of England and the Pensions Regulator had allowed an enormous financial vulnerability to build up without doing anything about it. The Bank’s own Financial Policy Committee — the body created specifically to spot and prevent this kind of systemic risk — had failed to act.
“What happened next is extraordinary. Instead of losing authority for its failure, the Bank of England ended up with more power. The crisis led to calls — backed by the BoE itself and the Financial Conduct Authority — for expanded regulatory control over pension fund borrowing, collateral requirements, and cash reserves. The institution that had let the bomb build used the explosion to argue it needed a bigger remit.
“But the ambition went further than financial regulation. In November 2023, the Fabian Society published a report called In Tandem: The Case for Coordinated Economic Policymaking. The report mentioned the Truss episode six times, using it as proof that the Treasury and the Bank of England could no longer be allowed to operate independently.
“The report’s main proposal was a new body called the Economic Policy Coordination Committee — the EPCC. This would bring together the Treasury, the Bank of England, the Climate Change Committee, the Low Pay Commission, business groups, and various civil society organisations. The committee would meet before the Chancellor’s major budget events — the spring statement and the autumn budget — and, crucially, it would be placed on a statutory footing. That means a future government couldn’t simply ignore it without first passing a new law.
“The way the Bank of England would become the senior partner in this arrangement was simple. The report proposed that the Governor should be required to write to the Chancellor whenever the Bank decided that interest rate policy alone wasn’t enough to manage the economy, effectively telling the Treasury to change its spending and tax plans. These letters, along with the committee’s published minutes, would be available to the press and the markets — creating exactly the kind of public pressure that had already been shown to bring down a sitting Prime Minister.
“The Truss crisis wasn’t just used to justify the proposal. It was the template.
“Step back and look at the full sequence.
- The Bank of England’s low interest rates created the conditions that pushed pension funds into risky leveraged bets.
- The Bank’s own regulators failed to stop the risk from growing.
- When the crisis hit, it was used to remove an elected government.
- After the crisis, the Bank’s regulatory powers were expanded.
- And then the whole episode was cited as the reason to hand the Bank effective influence over fiscal policy — the one area that is supposed to belong to elected politicians.
“At every stage, the Bank of England came out with more power than it had before. This isn’t a story of failure followed by reform. It’s a ratchet — a mechanism that only turns one way.”
Too Long Didn’t Read: in short, we are not being governed by those we thought.
We also seem to be trapped within some kind of dismal 1970s tribute act. Monetary system regime change ? Check. Wars in the Middle East ? Check. Fast eroding standards of living ? Check. Widespread disillusionment at the inability of politicians to get a handle on, or even acknowledge, any of the above ? Check.
Our friend John Butler addresses the doleful impact of conflict in Iran – and elsewhere:
“War is tragic in its destruction. It is also expensive.
“Somebody—someone fortunate enough to be alive—has to pay for not only the war, but the reconstruction thereafter. When it comes to the modern history of war, this comes through some combination of higher taxes and inflation.
“Taxes tend to fall primarily on the middle-class but are also paid for by the wealthy to some extent. Inflation affects primarily the middle- and lower-classes. Because the wealthy are asset-rich and asset prices tend to rise along with inflation, they are left relatively unaffected.
“But only relatively. Inflation is ultimately bad for everyone. It misallocates resources from more-productive to less-productive activities. That has long-term negative consequences for the economy.
“As we know, the rate of productivity growth in most developed economies has been in decline for decades. While correlation does not definitely establish causation, it does provide some empirical evidence for the above.
“And so, as war breaks out in the Middle East yet again, this time on an even larger scale, we need to prepare for another large, stagflationary supply-shock.
“The disruption has only just begun
“To put it mildly, war is economically disruptive. This is particularly the case when a war takes place in an economically-vital region.
“There has already been much infrastructure destruction in the Gulf. Much of that cannot be brought back online quickly. Some may never be brought back online. Who is going to rebuild an oil refinery in a region that might face another war over the coming years?
“Oil and other industrial commodities are going to face myriad, ongoing supply constraints. The food supply is likely to be affected. As food and energy are inputs into all manufacturing and other industries—you need to feed your workers, power your machines and transport your products—input costs for basically everything are going to be on the rise.
“Unless the long-term decline in productivity growth suddenly and sharply reverses, the result is going to be intensifying stagflation. That is just basic Economics 101.”
As Johnny comes to terms with his ‘gift’, he comes to appreciate that there is a ‘dead zone’ in his perception of the future that is blank and unformed; the future has not yet been determined, and is still open to change. In 2026, that void formed by a malign global amalgam of political, monetary and corporate corruption and capriciousness can usefully be filled by.. gold.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and real assets, and also in systematic trend-following funds.
“The military don’t start wars. Politicians start wars.”
Get your Free
financial review
David Cronenberg’s 1983 chiller ‘The Dead Zone’ still has a claim as one of the best screen adaptations of a Stephen King horror novel, second perhaps only to Stanley Kubrick’s 1980 masterpiece, ‘The Shining’. Schoolteacher Johnny Smith (Christopher Walken) emerges from a terrible road accident and coma with the power of second sight. A chance meeting with Senatorial candidate Greg Stillson (Martin Sheen) results in a terrifying vision of the near future, in which Stillson has become the President, and gives rise to the following exchange as part of that vision:
President Stillson: Do it, General.
General: You’re insane. I won’t.
President Stillson: Do it! You’ll go down in history with me!
General: As what? The world’s greatest mass murderers?
President Stillson: You cowardly bastard!
You’re not the voice of the people!
The people speak through me!
It came to me while I slept — my destiny.
I must get up now and fulfill my destiny!
Put your hand on that [scanning screen], or I’ll hack it off!
Do it!
General: May God forgive me.
President Stillson: Congratulations, General.
Sonny: Complete the sequence, Mr. President.
President Stillson: My destiny.
Thank you, Sonny.
Let them come up.
Advisers: Mr. President, we have a diplomatic solution.
President Stillson: Mr. Vice President, Mr. Secretary,
the missiles are flying.
Hallelujah. Hallelujah.
Whoever is tired of 2026 is tired of life. Not content with gifting us with the (still only partial, and heavily redacted) Epstein Files, which point the finger at the complicity of multiple philanthropath families including the houses of Gates, Rothschild and Soros in a succession of deeply disturbing-looking programmes involving experimental medical procedures, and ever more restrictive digital, social and monetary control, we now have a new Middle Eastern war to contend with, which at the time of writing threatened to escalate in inevitably unforeseeable directions. On the topic of Epstein, the former investment banker and US Assistant Secretary of Housing and Urban Development, Catherine Austin Fitts, gives a bravura interview with Tucker Carlson that you can watch here. Also well worth following, especially for meticulous Epstein analysis: the Substack accounts of Sayer Ji and the anonymous Escape Key. The latter’s recent coverage of how the ill-starred Liz Truss and Kwasi Kwarteng, for example, were stitched up by the Deep State, the OBR and the Bank of England is magisterial:
“On 23 September 2022, Chancellor Kwasi Kwarteng announced £45 billion in unfunded tax cuts1. Within six weeks, both he and his Prime Minister had been removed from office2.
“The story most people heard was simple: Truss and Kwarteng made reckless decisions, the markets panicked, and the Bank of England had to step in to clean up the mess.
“But if you look at what actually happened, a very different picture emerges.
“The crisis wasn’t actually caused by the tax cuts. It was caused by a risky financial arrangement that had been quietly building inside the UK pension system for years.
“For over a decade, the Bank of England had kept interest rates close to zero. That created a serious problem for pension funds. Pensions need to pay retirees, and with interest rates so low, safe investments weren’t earning enough. So pension funds turned to a complex strategy called Liability-Driven Investment, or LDI3. In simple terms, they used borrowed money to make bigger bets on UK government bonds — known as gilts. The gilts themselves were used as a deposit against the borrowing, much like a house serves as security on a mortgage.
“This worked fine — as long as the price of gilts stayed steady. But if gilt prices ever dropped sharply, the banks who had lent the money would demand more security. In financial terms, that’s called a margin call.
“This trick is not new. In 1720, a Scottish financier called John Law ran what became known as the Mississippi scheme in France4. The basic structure was the same: money was borrowed to buy shares, and the shares were used as security to borrow more money to buy more shares. The whole thing was circular — the asset backing the loan was the same asset being bought with the loan. When confidence broke, everyone tried to sell at once, prices collapsed, and France’s economy was destroyed for a generation..
“By the time Truss entered Downing Street, UK pension funds had built up roughly £1.5 trillion in these leveraged positions. And all of it depended on gilt prices not falling too fast5.
“After the 2008 financial crisis, the government gave the Bank of England direct responsibility for spotting exactly this kind of systemic risk. The Prudential Regulation Authority was created inside the Bank in 20136, along with a Financial Policy Committee whose entire job was to identify threats to financial stability7. The Bank had held this oversight role for nearly a decade by 2022. During that decade, this enormous vulnerability grew unchecked.
“The Bank either missed it or saw it and did nothing. Either way, the bomb was built on the Bank of England’s watch — and it was the Bank of England’s job to stop it.
“To understand why things blew up so fast, you need to understand what the government skipped.
“In 2010, the government created the Office for Budget Responsibility8 — the OBR. Its original job was fairly simple: provide an independent check on the government’s spending plans. Are the numbers realistic? Can we afford it?
“But over the following twelve years, the OBR quietly became much more powerful. By 2022, no budget or spending plan was taken seriously by the financial markets unless the OBR had signed off on it first. It was no longer just a forecaster offering a second opinion. It had become a gatekeeper. If the OBR hadn’t blessed your budget, the markets treated it as not credible — almost per default.
“When Kwarteng announced his tax cuts without an OBR forecast alongside them, he wasn’t just ignoring a tradition. He was trying to go around the gatekeeper — to make major fiscal policy without first getting it stamped as acceptable by the institution the markets had come to rely on. In the system as it had been built over the previous decade, that simply wasn’t allowed.
“The Spark
“The markets reacted immediately. Traders expected the tax cuts to push inflation higher, which meant the Bank of England would have to raise interest rates aggressively in response. That expectation alone was enough to send the price of government bonds — gilts — falling. And as gilt prices fell, the margin calls on those massive pension fund bets started firing.
“Then, within just four days, the International Monetary Fund publicly told the UK government to rethink its tax plans9. This kind of public dressing-down almost never happens to a major economy like Britain. The IMF normally reserves that treatment for developing countries on the brink of a debt crisis. The message was unmistakable: the UK government had crossed a line, and the world’s most powerful financial institutions were willing to say so openly. For the Bank of England, this was both permission and a tailwind.
“What happened next was a chain reaction. The pension funds got hit with margin calls — demands for more security — but they didn’t have the cash to cover them. So they had to sell the only thing they could sell quickly: their gilts. But thousands of pension funds were all trying to sell gilts at the same time, which drove gilt prices down even further. That triggered even more margin calls, which forced even more selling, which drove prices down again. It was a vicious circle, and it was completely automatic.
“By the morning of 28 September, several of Britain’s largest pension funds were reportedly just hours away from running out of money entirely10.
“The Fire Brigade and the Arsonist
“On 28 September, the Bank of England stepped in. It announced an emergency programme to buy up to £65 billion in government bonds, with the aim of stopping the death spiral in the gilt market11.
“The numbers here are worth pausing on. The government’s tax cuts — the policy that everyone said was so dangerous it had to be scrapped — were costed at £45 billion, spread over several years. The Bank of England’s emergency rescue of the pension funds’ risky bets — bets that had been allowed to pile up under the Bank’s own supervision — came to £65 billion, pulled together in two weeks.
“The system spent more money bailing out the problem it had failed to prevent than the government had proposed to cut in taxes.
“But at the same time the Bank was buying gilts to stop the crash, it had already announced plans to start selling gilts from its own stockpile in early October. This was part of quantitative tightening — essentially the Bank offloading bonds it had bought in previous years. Although the Bank delayed these sales because of the crisis, the markets already knew they were coming. Traders understood that the Bank of England was about to become a major seller of the exact same asset whose falling price was causing the crisis.
“There was also a simpler tool available. The Bank could have called an emergency meeting to adjust interest rates — a standard move in a financial emergency, and one that would have helped calm the markets. It chose not to12. Instead, it let pressure build until the next scheduled meeting in November. By not using the normal tool for this kind of situation, the Bank made sure that all the stress in the system went straight into the gilt market — and straight into the pension fund time bomb underneath it.
“So take a step back and look at what the Bank of England was doing all at once.
“Governor Andrew Bailey warned pension funds — and through them, the government — that they had ‘three days’ to get it done13.
“By putting a countdown clock on the survival of Britain’s pension system, the Bank left the Prime Minister with no room to move. The message could not have been clearer: reverse your policy, or we stand back and let it all burn.
“The Chorus
“Within hours of Kwarteng’s statement, and before any new economic data actually existed, the media had already made up its mind. The Financial Times, the BBC, Sky News, the Telegraph — they all reached the same conclusion almost instantly: this budget was reckless, ideological, and dangerous14. No one had yet run the numbers. But the verdict was already in.
“This mattered enormously, because traders read newspapers too. The narrative that the budget was irresponsible didn’t just reflect market sentiment — it helped create it. Traders sold gilts not only because they expected higher inflation, but because every major news outlet was already telling them the policy was doomed. A government that might have survived a rough few days in the bond market instead found itself facing a sell-off amplified by a media that had declared the budget dead on arrival.
“Over decades, the financial press and the broadcast media had absorbed the same ideas about what counts as responsible fiscal policy — the same framework the OBR was built to enforce. Those ideas had become instinct. When a government stepped outside that framework, the reaction was instant and unanimous — because everyone in the relevant professional class had been trained to see the world the same way.
“The media didn’t explain the mechanics of the LDI crisis to the public15. It skipped straight to the verdict. And the verdict was exactly the one the institutional system needed.
“The Outcome
“The government caved. Kwarteng was sacked on 14 October16. Truss reversed the tax cuts, then resigned herself on 25 October17. She was replaced by Rishi Sunak, with Jeremy Hunt as Chancellor — both of whom immediately went back to the old rules: defer to the OBR, work with the Bank of England, and raise taxes to balance the books.
“What the episode proved is worth spelling out clearly. An elected government in Britain can only set tax and spending policy if it first gets approval from the OBR, fits within the Bank of England’s plans for interest rates, and satisfies the financial markets — whose own models are built around what the OBR and the Bank say. There are three gates, and every budget has to pass through all of them. Each of those gates was built over the preceding decades by unelected institutions, not by voters.
“A government that tried to go around those gates found out that the gates themselves were the weapon. The mechanism that destroyed the Truss government wasn’t the tax cuts — it was what happened when an elected Prime Minister tried to make policy without institutional permission.
“The Ratchet
“After the crisis, Parliament’s Treasury Committee investigated what had gone wrong with the pension funds. Their conclusion was damning18. The Bank of England and the Pensions Regulator had allowed an enormous financial vulnerability to build up without doing anything about it. The Bank’s own Financial Policy Committee — the body created specifically to spot and prevent this kind of systemic risk — had failed to act.
“What happened next is extraordinary. Instead of losing authority for its failure, the Bank of England ended up with more power. The crisis led to calls — backed by the BoE itself and the Financial Conduct Authority — for expanded regulatory control over pension fund borrowing, collateral requirements, and cash reserves. The institution that had let the bomb build used the explosion to argue it needed a bigger remit.
“But the ambition went further than financial regulation. In November 2023, the Fabian Society published a report called In Tandem: The Case for Coordinated Economic Policymaking. The report mentioned the Truss episode six times, using it as proof that the Treasury and the Bank of England could no longer be allowed to operate independently.
“The report’s main proposal was a new body called the Economic Policy Coordination Committee — the EPCC. This would bring together the Treasury, the Bank of England, the Climate Change Committee, the Low Pay Commission, business groups, and various civil society organisations. The committee would meet before the Chancellor’s major budget events — the spring statement and the autumn budget — and, crucially, it would be placed on a statutory footing. That means a future government couldn’t simply ignore it without first passing a new law.
“The way the Bank of England would become the senior partner in this arrangement was simple. The report proposed that the Governor should be required to write to the Chancellor whenever the Bank decided that interest rate policy alone wasn’t enough to manage the economy, effectively telling the Treasury to change its spending and tax plans. These letters, along with the committee’s published minutes, would be available to the press and the markets — creating exactly the kind of public pressure that had already been shown to bring down a sitting Prime Minister.
“The Truss crisis wasn’t just used to justify the proposal. It was the template.
“Step back and look at the full sequence.
“At every stage, the Bank of England came out with more power than it had before. This isn’t a story of failure followed by reform. It’s a ratchet — a mechanism that only turns one way.”
Too Long Didn’t Read: in short, we are not being governed by those we thought.
We also seem to be trapped within some kind of dismal 1970s tribute act. Monetary system regime change ? Check. Wars in the Middle East ? Check. Fast eroding standards of living ? Check. Widespread disillusionment at the inability of politicians to get a handle on, or even acknowledge, any of the above ? Check.
Our friend John Butler addresses the doleful impact of conflict in Iran – and elsewhere:
“War is tragic in its destruction. It is also expensive.
“Somebody—someone fortunate enough to be alive—has to pay for not only the war, but the reconstruction thereafter. When it comes to the modern history of war, this comes through some combination of higher taxes and inflation.
“Taxes tend to fall primarily on the middle-class but are also paid for by the wealthy to some extent. Inflation affects primarily the middle- and lower-classes. Because the wealthy are asset-rich and asset prices tend to rise along with inflation, they are left relatively unaffected.
“But only relatively. Inflation is ultimately bad for everyone. It misallocates resources from more-productive to less-productive activities. That has long-term negative consequences for the economy.
“As we know, the rate of productivity growth in most developed economies has been in decline for decades. While correlation does not definitely establish causation, it does provide some empirical evidence for the above.
“And so, as war breaks out in the Middle East yet again, this time on an even larger scale, we need to prepare for another large, stagflationary supply-shock.
“The disruption has only just begun
“To put it mildly, war is economically disruptive. This is particularly the case when a war takes place in an economically-vital region.
“There has already been much infrastructure destruction in the Gulf. Much of that cannot be brought back online quickly. Some may never be brought back online. Who is going to rebuild an oil refinery in a region that might face another war over the coming years?
“Oil and other industrial commodities are going to face myriad, ongoing supply constraints. The food supply is likely to be affected. As food and energy are inputs into all manufacturing and other industries—you need to feed your workers, power your machines and transport your products—input costs for basically everything are going to be on the rise.
“Unless the long-term decline in productivity growth suddenly and sharply reverses, the result is going to be intensifying stagflation. That is just basic Economics 101.”
As Johnny comes to terms with his ‘gift’, he comes to appreciate that there is a ‘dead zone’ in his perception of the future that is blank and unformed; the future has not yet been determined, and is still open to change. In 2026, that void formed by a malign global amalgam of political, monetary and corporate corruption and capriciousness can usefully be filled by.. gold.
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As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
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Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and real assets, and also in systematic trend-following funds.
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