NYT learned about the fear of the US authorities for the collapse of the markets following the example of Britain
The newspaper writes that officials from the Fed, the Treasury and the White House are turning to economists and find out whether the US stock market is able to withstand shocks similar to the sell-offs on British markets.
Representatives of the Federal Reserve System (FRS), the Treasury and the US presidential administration are turning to specialists, fearing a collapse in the US stock market, similar to sales on British trading floors, reports The New York Times, citing sources.
“Fed, Treasury and White House officials are trying to figure out if the United States could experience its own turmoil and market crash that could hit households and make it harder to fight high inflation,” the publication said.
According to the publication, to assess the likelihood of collapses, the state has attracted experts from Wall Street and international experts. According to the interlocutors of the newspaper, the estimates obtained indicate the risks of a strong collapse, although such a scenario is considered unlikely in the near future. “There is a lot of anxiety in the markets and everyone is saying that it looks like something is about to break,” said Piper Sandler economist Roberto Perli. According to him, it is quite logical that officials check the situation.
NYT writes that Fed representatives, when communicating with market experts, asked about three negative scenarios for the development of events. In particular, they were interested in the presence in the US of an investment grade similar to British pension funds, which could face a significant and underestimated threat.
In addition, the department wanted to know how badly problems in the economies of other countries could hit the US financial system, for example, by inciting the country's largest creditors to start actively buying or selling off US government debt.
A week after Liz Truss officially took over as Prime Minister of Great Britain, the Treasury announced massive measures to deregulate and stimulate the economy worth 45 billion pounds (about $50 billion). The plan focused primarily on tax cuts. In particular, it was planned to reduce corporate income tax from 25 to 19%, reduce income tax to the same 19%, eliminate the 45% tax rate on excess income of the richest Britons, cancel the increase in the rate of mandatory insurance contributions by 1.25 percentage points. To finance such a sharp increase in costs was supposed to be at the expense of borrowed funds.
Nevertheless, on the day the plan was announced, the stock exchanges began to panic. The yield on 10-year British “gilts” (government bonds) reached 4.5% in a few hours, while at the end of August it was 2.6%, and the market value of these securities, respectively, decreased. Under attack were the assets of banks and pension funds holding a variety of British securities. On September 28, the Bank of England was forced to announce the start of a government bond buying program totaling up to £5 billion ($5.3 billion) daily until October 14.
After the failure of the economic initiative, Truss canceled the planned tax increase and fired Chancellor of the Exchequer Quasi Kwarteng. Nevertheless, a week later, more than a hundred deputies were in favor of holding a no-confidence vote, the Daily Mail wrote. Several members of parliament publicly called on the prime minister to resign. According to inews (an appendix to the newspaper The Independent), among the candidates for the post of prime minister, some MPs propose Defense Minister Ben Wallace.
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