It is Obvious

Chris Rick has got altogether too much to say

Treading on egg-shells

Posted by chrisrick13 on December 13, 2009

It is obvious: I believe the government.

Along with many other people I listened to the PBR with open mouthed astonishment.  I waited to see what the bond markets were doing.  Sure enough interest rates stepped up.  That does not affect our debt today, but on the rollovers the debt comes back more expensively.

At the moment the people who buy our debt are content to keep buying at reasonable, but increasing, rates.  This might be because there are enough basket case countries around that our debt still looks reasonably attractive.  If you are running away from bears in the woods you don’t have to be faster than the bears, just not slowest in your group.

So what was the PBR all about then?  I think I have the reasoning.  The UK economy is in a position from where it is unlikely to recover.  I will be generous, it is in a position where it is unlikely to recover any time soon and without a huge amount of pain for us, the people who voted the Labour government in.  A number of very fortunate and benevolent events will have to take place for it to recover.  So the government has worked backward from a benevolent recovery, assumed those events occur and acted accordingly.  If those events don’t occur there is nothing the government can do as the economy will crash anyway.  If they do occur they will be in power for a hundred years.  They don’t even have to think about it.

I suspect that the Labour party live in fear and terror of a majority at the next election.  That would take them out of power for a hundred years when their term was done.  Cameron would have a number of years of fun taunting them from their majority of a couple of seats to then take power with a hundred or more seats.  The Liberals will not enter a coalition with Labour or anyone as they will be out for a hundred years if they do and might just get their big chance in a year or two if they don’t.  Should the Labour party retain power then they will be stuck with Brown for some longer time.

All of this is being weighed and watched by our debt financers.  (Have you noticed that when we borrow money it is credit but when the government borrows it is debt?)  At some point the trigger that I have long talked about will be pulled and our national debt will suddenly get more expensive.  At 3% we pay £60bn a year in interest.  At 6% we need to find another £60bn a year.  That is a straight 10% off government expenditure without accounting for tax-take reductions.  Will it be your hospital, your pension, the bobby on your street, your kids’ class size doubling, your bins not emptied, your prescription drug tripling in cost?

It is obvious: : I believe the government has chosen an optimal path…for itself, not for us.

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