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Wednesday, 25 March 2009

You have run out of our money

The UK failed to find buyers for all of a £1.75 billion issue of bonds as investors rejected Prime Minister Gordon Brown’s economic plans.

Gilts fell after the Debt Management Office said investors bid for £1.63 billion of the 40-year issue. The last time the UK government was unable to attract enough investors was in 2002 when it tried to sell 30- year index linked gilts. The yield on the 4.5 percent gilt due 2049 rose 10 basis points to 4.55 percent.

This is not a good thing to happen when you have a 12% budget deficit. That is 12% of GDP, or about 23% of the money the UK government actually spends every year, or to put it another way, it means the Government spends 30% more than it takes in taxes.

Come to think of it if I spent 30% more than I earned, the ATM machine would stop giving me money pretty quickly.


Anonymous said...

"In Britain we are doing it [stimulating the economy] in three ways. We're doing it by interest rates being incredibly low, we're doing it by our fiscal stimulus and we're doing it by what is probably not yet understood by the public as one of the most effective and quicker ways of getting activity moving in the economy – by quantitative easing.

I'm sure you read this Alex, but any statement of intent from Mr. Brown which contains the word 'probably' worries me greatly. The analogy I have read or heard somewhere, of a deluded despot hiding in a bunker, manouvering fictional forces whilst claiming he is betrayed by his generals and misunderstood by his people, rings true.

Demetrius said...

Back in '76, it was a long hot summer, there was drought, fires sweeping across the moorlands, and inflation rising fast. As a chap entitled to a low interest loan from my employer to buy my car, I could sell it on after a year for more cash than I paid to deposit on a new one. The trouble was we were scrapping all the expansion that had taken place not long before, cutting down on stocks, not replacing staff, getting rid of others and it was all going to a financial hell hotter than the weather. By 1979 the Army was down to a couple of rounds of ammunition, we were giving ships away to the Poles to allow them to export cheap coal to us, and things were not getting any better. Anyone for tennis?