The Zero Sovereignty System
Philip Pilkington on how the debt hawk flies only when the Right nears power
Back in late March strange headlines started to appear in the financial press. “US Faces Liz Truss-Style Market Shock as Debt Soars, Warns Watchdog” read a headline in the Financial Times. A few days later the same paper told its readers that “Companies Rush to Issue Bonds to Forstall Market Volatility Ahead of US Election.” This seemed like strange timing to be running headlines like this. The Financial Times, after all, is a liberal paper—in recent years it has tilted definitively progressive in orientation—and 2024 is an election year with an incumbent liberal president. Why would a paper that absolutely hates Trump and is all on board with almost all the Biden administration’s policies highlight serious fiscal problems in the United States in the run-up to the election?
The Liberal Samson Option
The hint was in the headline in late March: “Liz Truss-style market shock.” Liz Truss became prime minister of Britain in September of 2022. Truss was not a particularly populist candidate. Having worn many different masks throughout her political career, the Truss that Britain got in September 2022 was backed by the Thatcherite free-market side of the Conservative Party. Unsurprisingly, tax cuts were Truss’s big policy offering. The Truss government aimed at abolishing the top rate of income tax and a proposed levy to fund the health services, and cutting the rate of stamp duty, corporation tax, and income tax. Truss’s proposal was notable for its boringness; another liberal conservative tax cut of the sort we have become used to over the past four decades. Nor was it particularly costly. The entire package was set to cost the Treasury around £30 billion, which was around 1.2 percent of GDP in 2022. Compare this to the Biden administration’s Inflation Reduction Act (IRA), also passed in 2022, which cost $891 billion or 3.5 percent of GDP, and we see that the Truss tax cuts cost roughly half as much relative to the size of the economy.
Then something strange happened: Britain experienced what appeared to be a fiscal crisis. Bond markets sold off and the pound sterling fell. The Bank of England had to intervene to prop up the pension system in Britain. The outbreak of a fiscal crisis seemed to defy logic. For one, Truss’s tax cuts were far less expensive than Biden’s IRA, which the markets shrugged off. But beyond that, the British government cannot really go broke in its own currency. If private holders of British government debt start selling, the Bank of England can step in to buy the debt and calm the markets. Whether this is a good thing or not is beside the point, it has been standard operating procedure for years. Even economists that disliked Truss’s tax cuts on ideological grounds were shocked by the market reaction. “I was very pessimistic about the consequences of utterly irresponsible UK policy on Friday,” liberal economist and former Obama Treasury Secretary Larry Summers wrote on Twitter, “but I did not expect markets to get so bad so fast.”
There are only two relevant questions about the Truss debacle. Firstly, why did the financial media portray the Truss tax cuts in such a negative light when their overall cost was not very high? Secondly, when the financial media had sufficiently spooked the markets, why did the Bank of England not intervene to calm markets and buy up debt as they would typically do? The answers to both questions are, in fact, the same answer: the financial media and the central bank disliked the Truss government’s policy. The attacks on the policy in the media were effectively of a partisan nature. It seems likely that those undertaking them had no idea how effective they could be and were pleasantly surprised when they caused absolute chaos. The central bank, together with most civil servants in Whitehall, found Truss’s policy gaudy and unlikely to help the economy. Normally, both the bank and the civil servants would accept that in a democracy they might not always get the policy they liked. But watching the bond market meltdown they realized that they had an excellent opportunity to stick a knife in the back of a government that they did not like. On Thursday, October 20, Liz Truss was forced by her party to resign as prime minister. She had spent just forty-four days in office, the shortest serving prime minister in British history.
The ouster of Truss was not a planned conspiracy. It was more like a hive mind of like-minded people using their respective power centers to attack a sitting prime minister. It is unlikely that any single member of the hive knew that it would result in the collapse of the Truss government, but they piled on regardless. After the smoke cleared, however, those who had done the deed started to realize the power that they had. They began to realize that they could render it impossible for governments that they do not like to govern. Of course, the costs of doing this are enormous. In effect, the liberals who engage in this sort of financial sabotage are sacrificing financial and economic stability to get at their political opponents—they are deploying a sort of liberal Samson Option. But the education levels, public spiritedness, and general sense of decency and decorum have fallen to such low levels in this class of people that they clearly no longer care.
And so, we are back to our headlines in late March. Now they start to make sense. Those who are strongly opposed to a second Donald Trump presidency are starting to see the Truss debacle as a sort of template for how to constrain or remove governments that they do not like from power. The Financial Times started publishing these articles in the hope that they would prime the financial markets to start getting concerned about American government borrowing. Then, if Trump wins in November, the narrative will be ready to go, and they can give Trump the Truss treatment. Evidence for this continued to build and build. Toward the end of May, the Financial Times ran a headline stating how things stood explicitly: “Bill Gross Says Trump Would Be Worse For Bond Markets Than Biden.” Gross, often referred to in markets as the “bond king,” highlighted Trump’s desire to . . . cut taxes.
French Revolutions
Reading between the lines was not hard. But ultimately doing so was still speculation. Although it seemed unlikely in those early days, perhaps liberals that watched the stampede of the Truss government were pure as driven snow and would never dream of weaponizing the financial markets to hem in an unloved government. This interpretation was at least possible until recently. Now it is completely untenable. Recent events have forced the liberal financial and political elite to tear the mask off and start to reveal their plans. It is now becoming clear that the intention, whether conscious or not, is to create a Zero Sovereignty System where democracy itself will be paralyzed by those who control the financial markets news flow, those who will go along with it in markets, and those in central banks who no longer see their role as promoting financial stability.
The mask-off moment came after President Emmanual Macron’s party, En Marche, suffered a wipeout in the European elections. Marine Le Pen’s right-wing Rassemblement National picked up enormous amounts of votes, signaling that a populist revolt was underway in France. The Parisian liberal elite panicked, realizing that they were losing control. President Macron called a snap election that it became increasingly clear that he would lose. Then the headlines started. Within days of the election the Financial Times ran the headline “Why France’s Far Right is Spooking Markets.” Le Pen’s economic plans “could turn into a ‘Liz Truss-style’ liability on the campaign trail” readers were told. French bond markets sold off as the headlines proliferated. The European Central Bank showed its hand soon after: Chief Economist Philip Lane stated that he saw no need for a French bond rescue. The European Commission announced that it was going to investigate whether the French government had an “excessive deficit” and is in breach of Eurozone rules. Macron’s finance minister stated that France “could experience the same dire consequences that followed a spending plan presented two years ago by then-UK Prime Minister Liz Truss, which resulted in her almost immediate downfall”.
After the French lined up their circular firing squad around Le Pen, it became almost too obvious what was going on. Whereas the Truss debacle occurred organically, with each actor playing their part out of instinct, the French looked like they were reading from a script. It became obvious to any knowledgeable observer that the liberal elite all over the world had watched the Truss debacle closely and seen in it a blueprint for a soft coup of sorts. Then the Financial Times went all the way and revealed the trick for all to see. With the British elections around the corner and Labour almost certain to win a huge majority, the paper ran on its front page a headline that said: “Labour Could Borrow More Without UK Bond Market Backlash, Say Investors.” If the headline was not clear enough, the subhead told readers exactly what was going on: “Relaxing fiscal rules unlikely to provoke a Liz Truss-style gilts crisis, according to fund managers.” All borrowing is not equal, it would appear, and it all depends on whether the liberal elite like the people issuing the debt.
Zero Sovereignty and Instability
The liberal elite who are deploying this strategy are as wily as they are cynical. But it is by no means clear that they understand the ramifications of what they are doing. Without the capacity to borrow a modern government cannot achieve much of anything. And what the liberal elite are putting in place is a clear system: if you try to govern outside of the strict liberal framework, various small, but powerful institutions will be deployed to destroy your capacity to govern. Ultimately, this concentrates actual power in the hands of a very small group of financial journalists, market participants and, most importantly, central bank technocrats. This is the Zero Sovereignty System. It is very dangerous as it rests on the assumption that these people can govern in a way that democracy cannot.
Many of these people seem to live in a very different era. Abstracting from the fact that we are supposed to live in democracies in the West, even from the perspective of functional governance the liberal elite no longer perform. The last five years have been an absolute catastrophe. From government finances to the economy to geopolitical stability, the liberal elite have governed over a circus that becomes ever more unstable and dangerous by the day. Voters are not tilting toward populism because they have suddenly become racist—they are doing so because the current elite is so obviously unable to govern. The liberal elite in the West is experiencing a profound competency crisis and seems to be populated by people who lack the education, wisdom, fortitude and temperament to govern. Increasingly, this group of people appears to be becoming purely political. This raises the question of what they are deploying their politicized strategies to defend.
The very deployment of financial markets, which must be neutral to work properly, to achieve political goals itself is itself illiberal. But beyond being illiberal, it is extremely unwise. Much as a dessert spoon is not designed to be used for surgery, bond markets are not designed to govern complex societies. Our political institutions, flawed as they may be, have developed over time to govern the societies that they are part of. Many are products of political upheaval and strife. They are not arbitrary machines that can be turned on or off at the flick of a switch. Yet the current liberal elite do not appear to understand this. They appear to view democrat governance as simply a mean to an end—and increasingly it is unclear exactly what end they have in mind. When they talk about “our democracy” it is very clear who is included in the determiner “our” but it is wholly unclear what is contained in the noun “democracy.”
Again, this goes beyond value judgments. At a certain point it becomes a question of governance: can the liberal elite, using their desserts spoons to do complex surgery, actually govern? Their plans are quite clearly being deployed to ensure that they stay in power. But these plans are required because they have lost the ability to govern, and the public is becoming aware of this as our societies and economies deteriorate—as even a potential world war looms ominously on the horizon. The Zero Sovereignty System will only make this crisis of governance worse. Currently, elections are putting at least some pressure on the collapsing liberal elite to ensure that they do not do anything too disruptive and stupid. If they did not fear voters they may well, for example, have announced conscription and sent Western troops to Ukraine, thereby plunging us into a third world war. But under the Zero Sovereignty System there will be no checks and balances. They will be able to do as they please because they will know that who gets voted into power makes no difference.
One is reminded here of the very late Soviet Union. By the 1980s, the nomenklatura—that is, the Communist Party elite—were ruling merely for the sake of ruling. Few of them really believed in communism, just as few liberals today appear to believe in liberalism. This was widely understood by the public in these countries. The system—arguably more stable in many ways than the liberal societies today—was extremely fragile because of this. The Soviet Union itself tried reforms but ultimately collapsed. Those who pushed for the reforms, however, were widely seen as well-meaning people. But in a few countries the nomenklatura held on to the bitter end, deploying ever more desperate maneuvers to maintain power. Those were the societies that saw the most instability as the Soviet Union collapsed. The liberal elite today would be wise to pay attention to the lessons of that era.
The narrative battle space is World War III, as this article explains. Of course the battle can always become kinetic. I wonder if their control is about to collapse, this Zero Sovereignty argument suggests it has stumbled upon a remedy for electoral backlash through financial manipulation, or rather, sabotage of governments that are not compliant. Really, you can’t blame them, they have been pillaging virtually unimpeded, who would want to give that up.
Yes, Liz Truss was stitched-up by a Blob, but she was the architect of her own misfortunes.
Her fatal step was to start her premiership by sacking Treasury mandarin Tom Scholar - simply so that she and Kwarteng could live in an echo-chamber.
It was unnecessary and spiteful. Worse, it was a vainglorious declaration of war on her powerful opponents, whom she made no attempt to win over or even conciliate.
Truss had made her name in Parliament by a constant policy of confrontation - against weak opponents. She was wholly unprepared for the Big League and had forgotten (if she ever knew) the saying "softly, softly catchee monkey."