 So quasi-quarteng has been playing a pretty high stakes game of dominoes over the last few days starting on Friday where he flicked the fiscal finger using his mini-budget which ended up cascading a number of dominoes which ended up on Wednesday with the Bank of England intervention. Now a lot has happened in the last five days and a lot of dominoes have fallen So let's explain this by playing quasi-quarteng's game of dominoes Here we go So on Friday, Kami quasi came up with this mini-budget, this fiscal event Which looked an awful lot like a fully blown budget, but without the scrutiny 45 billion pounds worth of tax cuts Mainly benefiting the rich, hoping that the theory of trickle-down economics would for once actually work Couple that with the 150 billion pound energy tax freeze for businesses and households and suddenly you're looking at a massive massive increase in government debt Which was seen by the market as pretty fiscally irresponsible That was on Friday and the first real domino falls on Monday We woke up to our cornflakes on Monday morning listen to the radio and realized that Stirling has dropped over night And he's trading at about one oh three one oh four against the dollar the lowest levels in 37 years again, this is a massive vote of no confidence against the mini budget and is a representation of Investors for ex-investors wanting to get out of Stirling because it's too risky Get out of Stirling because they're a safer haven to get into pretty much get into dollars What this also does is in the side is the decrease in the devaluation of the Stirling Increases the cost of our imports, which is actually pretty inflationary Especially as in the UK we have a pretty large but current account deficit so Quasi is trying to boost economic growth Which has fallen due to inflation and increased interest rates But actually his first act the first domino is actually pretty inflationary Domino number two. This is all where it all gets a little bit serious So as a result of the budget on Friday Government short medium and long-term bond yield spike So what does this mean? This means that investors from around the world are selling out of their bonds their government bonds a Mass sale of bonds decreases the price of these bonds and increases the yield on UK government bonds this is a massive vote of no confidence and represents the fact that Investors now need to see a higher yield in order to hold government debt Because they see it as more risky the UK becomes a little bit of a basket case We've taken on too much debt. Can we pay it back? It all gets quite concerning fast-forward to Tuesday and This is again, this is the straw that Encourages the Bank of England to intervene and it's all about pension funds now pension funds invest about 1.5 trillion pounds in the UK about half of that Is in long-dated government bonds? so in the short term the increase yields and the increased interest rates have actually been beneficial for Pension funds as they have to hold less assets in order to cover their future liabilities. That's fine. That's good But actually what we care about is the other side of the story. This is where the Bank of England comes in in order to protect pension funds against yield fluctuations and to get some exposure to long-term interest rate risk pension funds by interest rate swaps now long-term Fix rates have been rising so rapidly as we've discussed many of these swaps are Significantly out of the money meaning that pension funds most of which use leverage in these swaps Need to post more collateral to maintain these hedges Or actually simply just sell long-dated government bonds Which leads to the kind of tipping of the last domino in order to meet margin calls on their interest rates swaps Pension funds need to sell assets and the first asset they turned to was their holding of long-dated government bonds You may see where this is going. It leads to a death spiral Selling long-term government bonds increases yields which results in hedges being even more out of the money requiring more collateral in the sale of more long-dated bonds selling more guilt Further increases the yield and the spiral continues and continues and continues It was this negative spiral that the Bank of England was so desperate to arrest yesterday When they promised to do whatever it takes In order to calm the market and to an extent as we can see here To an extent it's worked Bond prices have risen Yields have calmed. However, the Bank of England will only do whatever it takes for two weeks So there could be a lot more pain to come