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The market test of Britain's credit worthiness

Robert Peston | 09:15 UK time, Wednesday, 6 January 2010

Today is the first serious test of investors' appetite to lend to the British government, since anxieties about the creditworthiness of the British government ratcheted up in mid December.

There's a conventional sale of UK government debt, or gilts, by the Debt Management Office (DMO).

The fund-raising is fairly substantial, £4bn - although less than 2% of all the gilts the DMO has to sell this year.

That said, it is a so-called short-dated gilt, repayable in 2015, which have to date proved easier to sell than gilts of longer maturity.

Perhaps understandably, investors have for some time been keener to lend to the government for five years than for 30 years.

So in a way the more important test of borrowing conditions for the government will be when the DMO tries to sell a gilt repayable in 10 years.

There are of course shades of grey in all of this, in that it has become quite a lot more expensive for the government to borrow this money over just the past six weeks or so.

Based on the market price of this gilt, the Treasury would have paid 2.75% interest for the money in early December, when this maturity of gilt was trading at par. Today it will pay around 3.1% interest, because the price has fallen fairly sharply.

Treasury building

That may not sound like a big change. But if that interest rate increase were replicated across every single pound of the £225bn to be borrowed on markets this year, it would mean the government would be shelling out around £800m extra a year in interest.

And, in fact, most forecasters believe that the rise in what the government will have to pay will be much steeper than that.

Right now I cannot find a banker or analyst who isn't actually or intellectually short of gilts. They all expect gilt prices to fall sharply in the run up to the election, which means of course that the cost of borrowing rises for HMG - which is of course an unpleasant incremental burden for all of us, as taxpayers.

There are those who fear that the interest bill for the government will rise in the coming years by several tens of billions of pounds.

There is of course a more apocalyptic risk - which is that at some point investors lose patience with the government's failure to spell out precisely how it plans to cut public borrowing to more sustainable levels (which I've bored on about in assorted notes) and simply refuse to lend what the government needs.

It is striking that the Greek government, which is rather further down the path to fiscal disaster than the British administration, is employing slightly unconventional means to raise the cash it needs - though is not at the stage of having to request emergency help from other EU members or the International Monetary Fund.

Whatever happens in today's auction, the government would probably be ill-advised to allow market confidence in its commitment to reduce the deficit to continue to drain away.

As has been widely pointed out, the price of gilts would be lower still, if many investors did not believe that there's likely to be a budget-slashing Tory government elected later this year.

Which means that if the popularity of the incumbents were to increase, that could trigger a further fall in sterling and a funding crisis - which would presumably de-rail any gains being made by Labour in the opinion polls.

So the political survival of Labour may well hinge on the credibility of its deficit reduction plans - which is why Peter Mandelson will today attempt to dispel the conspicuous impression of a cabinet divided on the importance of restoring sound public finances.

UPDATE, 10:48: There's no strike of lenders to the government, or buyers of gilt, as yet.

Today's gilts auction went pretty well.

The Debt Management Office sold all the £4bn on offer - and in fact received bids for £10bn, so may increase what's available by another £400m.

But as I said in my earlier note, the Treasury is having to pay a 12% higher interest rate than only a month ago to raise the money.

So it would be wrong to say that conditions for borrowing by the Treasury haven't deteriorated.

Comments

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    So what you are basically saying Robert, is that when Gordon Brown ducked the question (yet again) from Andrew Marr on Sunday, instead waffling about not the time to conduct a spending review, he cost this country £Millions, if not £Billions.

    Prudence has defintely left the building

  • Comment number 3.

    Here's my prediction.....no trouble at all selling this issue and the price of gilts will hardly fall at all.....when everyone defers purchasing gilts until the last minute, the price is always higher at the last minute ......just like when you go on holiday .
    Also PSBR will fall much faster than predicted......the word on the street is that public spending is being slashed on the qt.... huge swathes of future projects have been quietly abandoned.

  • Comment number 4.

    R. Peston wrote:
    Today is the first serious test of investors' appetite to lend to the British government, since anxieties about the creditworthiness of the British government ratcheted up in mid December.
    There's a conventional sale of UK government debt, or gilts, by the Debt Management Office (DMO).

    Well if doesn’t support the point the QE has simply been a method of funding Government for the last 12 months I don’t know what does.

    In any event it isn’t the first serious test of investors appetite because we’ve still got £8 billion of QE in reserve to buy up failed gilt sales.

    The serious test comes when QE finishes.

  • Comment number 5.

    As has been widely pointed out, the price of gilts would be lower still, if many investors did not believe that there's likely to be a budget-slashing Tory government elected later this year.

    Which means that if the popularity of the incumbents were to increase, that could trigger a further fall in sterling and a funding crisis - which would presumably de-rail any gains being made by Labour in the opinion polls.


    Seriously off message Robert, unless your involvement with another group is moving towards the Lib Dems

    Surely this strong message should be at the top rather than buried at the bottom for balance

  • Comment number 6.

    Of course we're going to have to pay higher interest on our gilts...we're a greater risk than was once the case.

    With no QE everyone is assuming prices will rise which then acts as a disincentive to invest/buy the gilts at the current price, which consequently forces the price, and the interest we will pay, up.

    We need to lower the perception of risk by illustrating our willingness and ability to honour (re)payments. The bitter pill here is tax and the painful adjustment to ensure government income is maintained vs expenditure at a time when the economic cycle means gov revenue is decreasing.

    Failing to make this adjustment is simply boom-bust and to noone's benefit. Gilt purchasers do not want anyone to default. We need to break the negative cycle and endure short term pain to avoid longer term interest repayments crippling the economy. If the market starts to believe that gilt prices aren't going to get much better they will be bought notwithstanding the difference(s) between short or long term prices (short term most likely to draw more demand).

  • Comment number 7.

    > Whatever happens in today's auction, the government would probably be
    > ill-advised to allow market confidence in its commitment to reduce the
    > deficit to continue to drain away.

    Any dunce knows that the idea of an election campaign is to please the voters, not to freak them out. So why have we been told that "superstar investors" are clever?

    Surely, unless they are thick and naive, they would not expect commitments to reduce the deficit in the run-up to May 6th? Perhaps they're peeved that the news has moved on to the next thing.

  • Comment number 8.

    What's missing from this interesting discussion?
    Any comparative information over time. So here's one: in 1997-98, UK Government debt cost 5.2% of our national income. That's almost three-quarters more than it's expected we'll have to pay at the peak in 2014.
    It was difficult to manage such giant debts then, but it wasn't the big issue. The big issue then was to get growth going up and getting unemployment down. Same as now; but from a much wealthier level.
    As British growth progressed since 1997 - the UK has out-paced growth in most rich countries - debt was paid off and decades of under-investment in NHS, schools and public transport was reversed. Along the way, government debts fell as tax revenues rose with the growth in our national income.
    Today, neither New York Bond buyers nor British shoppers agree with the doom-laden forecasts. British Bonds are priced at a lower premium versus US Bonds than last Spring and the tills are ringing with consumer confidence in our economic future.
    You should get out more!

  • Comment number 9.

    In the end it will be taxation that gets us out of this mess, it always is once nobody is prepared to lend us money any more. One sacred tax cow that could go the slaugher house is no VAT on food - 5% could be a nice starting rate.

  • Comment number 10.

    I think its about time the government started giving some credit to it's voters we are not all thick, we can read between the lines and with the web we can find things a lot faster in most cases the truth!

  • Comment number 11.

    Robert

    How about telling us what the assumed interest rate was when the government projected its falling deficit in the PBR.
    They are apparently frightened to tell anyone which leads me to believe that it was ultra conservative. If that is the case any rise in interest rates will blow a hole in the forecasts.

  • Comment number 12.

    10 Leftie, take of your rose coloured glasses.

    Yes debt was paid off for 2 years thanks mainly to the sale of the radio spectrum. Since 2000 the government debt has increased.
    Of course it is much worse than published because PFI/PPI is off balance sheet as is the Pension liability into the future.

  • Comment number 13.

    "As has been widely pointed out, the price of gilts would be lower still, if many investors did not believe that there's likely to be a budget-slashing Tory government elected later this year.

    Which means that if the popularity of the incumbents were to increase, that could trigger a further fall in sterling and a funding crisis - which would presumably de-rail any gains being made by Labour in the opinion polls".

    So, Robert, Labour is bad for the economy. That's not exactly news, is it?

  • Comment number 14.

    RBS shares up nearly 25% since the end of 2009.....which adds a lot more than 4 bln to the value of HMG's holding in RBS... and methinks that will do no harm to HMG's credit worthiness .

  • Comment number 15.

    Three factors have prevented a collapse since last May:

    1. QE

    2. Market expectations of a Tory victory, following Labour's electoral
    crash in the May 2009 elections

    3. The pragmatists (like Peter Mandelson) seized control of the government from the zealots.

    All three props are weakening:

    1. QE has ceased (so we're no longer monetising the deficit at big inflationary risk).

    2. Markets are realising that a workable Tory majority is by no means a certainty.

    3. The fanatics seemed to have seized back control of Labour from the pragmatists.

    Next risk? The budget. To be tough enough to please the markets, it would need to upset voters, so that's not going to happen. So it will be either unrealistic, or unbelievable, or both. Cue the collapse.

    The best hope now is a pre-budget election, rather than a pre-election budget. But will this happen? No, because it would mean putting national before party interest. As I said, cue the collapse.

  • Comment number 16.

    Dempster wrote:

    "In any event it isn’t the first serious test of investors appetite because we’ve still got £8 billion of QE in reserve to buy up failed gilt sales.

    The serious test comes when QE finishes."

    I agree with the statement above. I read that the vast majority of QE money has been used to fund the growing deficit, which leads me to wonder whether the market will have the appetite to fill the gap in gilt purchases left when the QE money runs out. I completely agree with the sentiment of the article - without a clearly defined exit strategy for the current level of gov borrowing investors will be demanding far more return on their investment for the level of fiscal uncertainty created.

  • Comment number 17.

    RE: 8. leftie

    "in 1997-98, UK Government debt cost 5.2% of our national income. That's almost three-quarters more than it's expected we'll have to pay at the peak in 2014."

    2014 isn't the peak. Not even close. If we assume Labour get re-elected (so that they can in fact implement their stated plans) then by 2014 total UK government debt will be in the 90%-100% of GDP range, with the annual deficit running at 6%-7% ie still rising strongly and far faster than the economy grows. If we then go on to assume some fairly aggressive additional cuts in the deficit (meaning additional tax rises and/or additional spending cuts) then the total debt might stabilise relative to GDP somewhere around 2018-2020 at around 110%-120% of GDP. At that point the debt will still be rising in absolute terms but might at least be tracking growth in the economy. So the 110+% of GDP will by then be a permanent feature of the UK economy. Of course that's 8-10 years from now. At that point, how much time will we have before the next recession hits? Will we respond to that by pushing government debt up to 150%-160% of GDP?

    Of course, in reality, none of this will actually happen. There aren't enough gullible lenders out there and the only other option is to print money and something tells me that printing the (roughly) three quarters of a trillion pounds that this projection requires might just have some negative consequences.

    The truth is that New Labour's plan of record is economic insanity. It probably can't be done at all. If it could be, it would condemn this country to generations of debt slavery and might well create a debt so large that it becomes self sustaining.

    Oddly enough, even New Labour apologists acknowledge that Brown's stated plan is madness. In reply 3 onward-ho wrote

    "Also PSBR will fall much faster than predicted......the word on the street is that public spending is being slashed on the qt.... huge swathes of future projects have been quietly abandoned."

    If that's true then it turns out that even the New Labour leadership realise that their borrowing plans are somewhere between insane and impossible and the only serious option is to implement big cuts in public spending. I wonder if they've told Gordon. Does this mean he will have to learn how to say "public spending cuts"?

  • Comment number 18.

    Robert, you stated : "the political survival of Labour may well hinge on the credibility of its deficit reduction plans". That will be a very difficult trick to perform as long as Labour has a Prime Minister who is in denial about the deficit in the first place. Caledonian Comment

  • Comment number 19.

    14 Onward Ho

    RBS shares up on:
    (1) dodgy accounting - splitting the books so one shows a profit and one shows a loss, but aggregate is a £5 billion loss, never very good for share prices.
    (2) QE money sloshing around. When that disappears, RBS paper profits will too. Stock Market is overvalued - expect significant fall this year - most traders I've read are expecting it.

    And for the record:

    Dow Jones index:

    Sep 1929 381.17 = Peak
    Oct 1929 230.07 = Wall Street Crash
    Nov 1929 198.60 = interim bottom
    Apr 1930 294.07 = bear market rally
    Jul 1932 41.22 = bottom

    Thats nearly three years from the initial shock to final destination.

  • Comment number 20.

    So what are we predicting for Q4 UK growth?
    That will have a big bearing on the markets too....methinks the turnaround is actually going to be much more dramatic than predicted....anyone for 0.7%?
    You first read it here.

  • Comment number 21.

    If the election is to bring recovery, what does Labour have hidden?
    And what do the conservatives have to do to prove they have a answer?

    It is all end in shouting across the dispatch box whatever.....

  • Comment number 22.

    #8 Leftie

    Love the rose tinted glasses!

  • Comment number 23.

    15 Friendlycard

    Good comment - hence the PBR promising increased benefits and few cuts to keep the Labour faithful faithful! Though this looks a lot like Brown over-riding Darling (poor Darling... what an inheritence and what a boss)

    I wonder if Labour though, will have to move for an early election. As you say a realistic budget will lose votes, an unrealistic one could cause a gilts strike.

  • Comment number 24.

    What interests me is the situation in Iceland, this has a direct bearing on the situation in the UK.

    The powers that be (IMF, World Bank, EU as well as UK and Netherlands) will put a huge amount of pressure on the Icelandic government and people to honour this debt including rescheduling, long term grants and finally cancellation.

    There is no way that Iceland can be allowed to default on this debt because if they did default and did not subsequently collapse (they are self-sufficient in fish and energy) then the rest of the global financial system would be thrown into complete disarray.

    I expect that a deal will be done but that the hardy Icelandic people will be able to push large discounts to the >£10,000 per person owed.

    Will we in the UK get our money back ? Not only do I think it unlikely but I figure that we will end up paying more into the EU to assist their rebuilding.

  • Comment number 25.

    Not My Job (*)
    (*)=Mac Dre

    Risk..That's not my job, I don't do that
    I'm a pimp slash rapper, I thought you knew that

  • Comment number 26.

    Robert any response from number 10 on the impact this will have on Labour's investment plans? or are they now going to switch to cuts? several months late as usual.

    A thought. Maybe bankers bonuses should be paid in long term gilts with a high tax penalty (90%) for redemption within 5-10 years?

  • Comment number 27.

    Robert (or anyone else who may know)

    How can Japan service a much larger debt without the same potential difficulties as Britain or Greece?

  • Comment number 28.

    "23. ArnoldThePenguin:

    Thanks, and you're spot-on here.

    I think it's a matter of timing. A gilts strike could happen very soon. The budget is likely to be in April, the election after that.

    It's all in the wrong order. We need the election before the budget, so that the budget can be a tough one to reassure markets.

  • Comment number 29.

    #27 Matt Durbin

    Japan has a strong manufacturing and export base and thus is perceived to be able to service its debt.

    Britain and Greece have what?

  • Comment number 30.

    @ 8

    I needed that laugh cheers .....

    As British growth progressed since 1997 - the UK has out-paced growth in most rich countries - debt was paid off and decades of under-investment in NHS, schools and public transport was reversed.

    That investment in the main has yet to hit the balance sheet, it was done by selling off assets/gold etc many at rock bottom prices, then renting new hospitals and schools at prices way over the going rate much of this PFI finance has not been added to the balance sheets as yet, as as for getting out more, there are only one set of people we require out, we have to wait until May to do it.

    Perhaps we have to get election law changed so that if GDP is negative for 2 quarters then there has to be an election in 60 days, the incoming government can then have 12 months to sort it out before again being subject to this rule.

    A very simplified method and i am sure they would find a way of changing how figures are reported but this system we have is serving our country badly as things stand, with no way for the people to oust the perpetrators of this or future economic disasters......

  • Comment number 31.

    Whoever is the next government has to cut the public sector deficit quite ruthlessly. However, whoever will be the next government are very shy of expressing that view. Consequently all parties are being dishonest with the electorate; who it would seem understand the reality far better than the political class.

    The New Labour project of ever-improving public services funded by the taxpayer and taxpayer funded debt has hit the buffers and they have no Plan B. You can dress up the accounts in any way you like but the simple truth is that the government is bust. More bust than ever before!

    The fact that at the moment The Treasury can find sufficient punters to take the debt is a good thing. It has been the UK's historical reliability in repaying debt that is currently serving us in good stead. However, there is a limit to all things and so attitudes at the head of government need to change.

    Utterances from Mr.Brown and his circle are becoming more desparate and each time they seem to echo with a deeper resonance suggesting that the bunker is deep down and they are still digging.

    If Labour wishes to survive as a party they should conduct a palace putsch and seek partners in a government of national unity. I would suggest that Mandy could be up for such a strategy and only he could pull it off. If Labour does not do something rational soon then not only will the election be lost but probably the party will be gone as well.

  • Comment number 32.

    29. At 11:53am on 06 Jan 2010, StephenBlencowe wrote:

    #27 Matt Durbin

    Japan has a strong manufacturing and export base and thus is perceived to be able to service its debt.

    Britain and Greece have what?

    ----------------

    Please! So negative? We have schools and hospitals, a nationalized rail system, lots of councils and civil servants, the BBC and other entertainers. What more could we want? Of course, they have to pay for a war and a whole bunch of MPs' expenses out of their "profits," so it's not quite as good as it seems. Wonder why Alistair has trouble balancing the books.

  • Comment number 33.

    27 Matt Durbin

    Japan is the second biggest economy in the world (after the US) and exports a LOT of stuff. 2009 was the first year it had a trade deficit. That is, Japan has traded at a profit for the previous 28 years, has saved a lot of cash, can service its debt and, consequently, is considered a good bet by bond markets who buy govt debt.

    The UK by contrast has been running an increasing trade deficit for years. This is because our economy has moved ever further towards a service economy (currently 75%). With few exceptions, services are not exported. This means we have been spending more than we have earnt for some time. In fact, the UK trade deficit has risen by 50% in just the last three years alone:

    2006 > £60 billion
    2007 > £89 billion
    2008 > £93 billion

    Compounding the trade inbalance, the UK is already highly indebted. At current rate of progress, public (govt) debt will hit £1.5 trillion within 4 years - the equivalent of £48,000 per head of the working population. Personal debt, including mortgages, pushes this figure higher still (another £1.4 trillion for the country).

    In the absence of a clear debt reduction plan by the govt (i.e. harsh spending cuts and tax rises) and no clear indication of who will be running the country in six months time, bond markets are wary of lending money to the UK.

    Its basically like choosing whether to lend a tenner to your mate who only works part time, might struggle to pay his rent this month and could move away and your other mate who has debts but lots of property and a good job.

    One final note: the 2006 deficit represented 5% of GDP; according to investment guru John Mauldin, no country has “ever run a deficit of more than 5% without at least a 30% drop in the value of its currency”.

    That means high inflation as imported goods (the bulk of what we buy) become more expensive.

  • Comment number 34.

    30. AqualungCumbria:

    "Perhaps we have to get election law changed so that if GDP is negative for 2 quarters then there has to be an election in 60 days, the incoming government can then have 12 months to sort it out before again being subject to this rule.

    A very simplified method and i am sure they would find a way of changing how figures are reported"

    They already do. Take 2007, just as an example. In that year, real GDP growth was reported at 3% after deducting inflation (the GDP deflator) of 3.25%. Does anyone really believe that inflation was 3.25% in 2007, when energy and food prices were powering ahead?

    Inflation numbers are 'adjusted' by using 'weightings', 'substitution' and 'hedonics'.

    If you back out these adjustments, growth during 2000-2007 was very small - and even this was debt-driven, i.e. borrowed growth.

  • Comment number 35.

    Mr Peston wrote:
    'UPDATE, 10:48: There's no strike of lenders to the government, or buyers of gilt, as yet. Today's gilts auction went pretty well'

    Well if that’s correct there is no need for the BOE to spend the last £8 billion of the QE money buying gilts. According to its website it’s spent £191.753 billion to date.

    If it uses up the last £8 billion buying gilts, then today’s gilts auction was a con, if it doesn’t then I’ll concede the point.

  • Comment number 36.

    34 Friendlycard

    I think inflation has been misreported for years.

    High inflation means higher bond rates for a govt dependent on debt and higher interest rates for Labour's "successful" economy built in reality on easy credit. So there's a clear motive for keeping the numbers down to keep the party going; for example, by removing mortgage prices from the scale.

    When you consider house price inflation was regulalry in the 20% mark before the credit crunch, you have to ask why that was not reflected in the reported inflation figures. Businesses must have had to recoup the higher cost of premises. In fact the cost of premises was the main factor in my not starting several businesses over the last four years, as the margins were too small after paying rent. I am not surprised now to hear forecasts of a significant drop in commercial property prices in 2010.

  • Comment number 37.

    Just to put a bit more perspective on this particular gilt issue. The coverage ratio (bids to issue) was, at 2.68x, the highest since last March. The yield, at 3.08%, was well below the c.5% blended cost of the Government debt in issue and below the average of the last 12 months' issues (c.3.5%). The fact that it cost a bit more than it might have done a few months ago is more to do with the fact that funding costs are going up all over the world as growth returns and higher interest rates generally (but not by historical standards) get a bit nearer.

    All in all, hard to see anything negative in this at all, much though many like to try.

  • Comment number 38.

    33. At 12:11pm on 06 Jan 2010, ArnoldThePenguin wrote:

    "Its basically like choosing whether to lend a tenner to your mate who only works part time, might struggle to pay his rent this month and could move away and your other mate who has debts but lots of property and a good job."

    Nice analagy - but what sort of 'mate' does it make you if you only lend to those who are secure? (I don't mean you personally).

    This nicely highlights the battle we all experience as our humanist insticts (because we're all human) and the Capitalist system (which is not).

    The human in you tells you mate 1 needs the money more, but the Capitalist system ensures that if you take this road then it will be to your detriment(most likely).

    This is how Iceland are feeling right now - all their 'mates' have deserted them and are banging the door down for their money, punishing them for the damage done to their Economy by the 'global' banks (who are now profiting from it BTW)

    At times like these we all find out who our 'mates' are.

  • Comment number 39.

    3 Here's my prediction.....no trouble at all selling this issue and the price of gilts will hardly fall at all.
    UPDATE, 10:48: There's no strike of lenders to the government, or buyers of gilt, as yet.

    Today's gilts auction went pretty well.

    The Debt Management Office sold all the £4bn on offer - and in fact received bids for £10bn, so may increase what's available by another £400m.

    Exactement!

    Next!



  • Comment number 40.

    Question: Whatever happened to DebtJuggler's petition. Why was it referred to the moderators and deleted?

  • Comment number 41.

    36. At 12:45pm on 06 Jan 2010, ArnoldThePenguin wrote:

    "When you consider house price inflation was regulalry in the 20% mark before the credit crunch, you have to ask why that was not reflected in the reported inflation figures. Businesses must have had to recoup the higher cost of premises."

    ...and you consider where most people were getting their 'extra cash' from - i.e. remortgaging.
    The house price inflation meant you could get access to cash rising at a faster rate than all the other goods and services you pay for - effectively making them 'cheaper'.

    No wonder people thought 'everything is getting cheaper' for the last 10 years - it wasn't, the underlying value did not change much, but the availability of cash was going up and up via remortgaging and taking out secured loans.

    This has the effect of encouraging businesses to overproduce - in the belief there is a growing market out there - and one growing faster than their costs are increasing (because most businesses are less affected by property inflation).

    Then one day - we all wake up from the dream and reality bites.

  • Comment number 42.

    36. ArnoldThePenguin:

    "I think inflation has been misreported for years".

    Yes, and the US has been doing it too. This is outlined in Chris Martenson's 'Crash Course' website, using figures from ShadowStats.

    Meanwhile, the news is that there'a a serious challenge to Gordon Brown's leadership. That should actually help the gilts market, as the man is a huge liability.

  • Comment number 43.

    Thanks to all those who replied to my question.

    However, as well as a strong manufacturing base Japan also has deflation, no natural resources, a highly protected economy (e.g. rice imports) and a rapidly ageing population.

    That doesn't sound like a great bet to me!

  • Comment number 44.

    39. At 12:56pm on 06 Jan 2010, onward-ho wrote:

    "Exactement!

    Next!"

    You can add this to the list of junk information churned out by this recession. It's yet another mis-aligned star for you all to follow religiously in your quest to find a way out of the dire situation we're in.

    You can always count on 2 things:

    1) There will always be contrarian investors
    2) There will always be someone who thinks they can 'make a quick buck'.

    It doesn't matter too much about this auction - it's for short term bonds and it's the first of the year.
    What really matters is the comments from Black Rock and PIMCO and how they view the situation on UK debt.

    ....and am I right in thinking that the relatively low yield which was accepted by the markets indicates they think it's a good return compared to other investments - i.e Equities? - certainly until 2015 it would seem.
    Don't forget the Bond market is a 2 way street, not only does it reflect the opinion of the market on the Government deficit and it's ability to pay, but it also shows the overall expectations of Economic growth and the amount of fear in other asset classes.

  • Comment number 45.

    34 and 36

    Excellent points - my understanding is that asset transactions (such as houses or shares) are supposed to removed from both GDP and inflation (probably for a mix of practical & idealogical reasons) - so theorectically they should be consistent.

    However while it is easy to remove asset prices from inflation - its just a sample anyway, so you just remove them from the sample. Its much more problematic with GDP, as there will be loads of fees and other payments tied to them, e.g. estate agent fees that are a % of the sale price.

    So any house price inflation would have no effect on inflation, but some effect of GDP. Therefore if you pursue a policy of raising the money supply (by increasing debt), but not at a level that will effect retail prices (by using retail price management as the benchmark for interest rates) - then you will inevitably get an *apparent* rise in GDP - as any inflation goes into assets, and, by the above, this only effects GDP and not the inflation measure used to adjust it.

    I don't profess to be an expert - and would welcome any corrections to what i've said - but it seems as though there is a general perception that a large proportion of the UKs growth in the last decade was not real. I've never seen anyone come up with hard and fast numbers that show this, but I guess that doesn't matter - as perception is everything in these cases.

  • Comment number 46.

    44. writingsonthewall:

    "What really matters is the comments from Black Rock and PIMCO and how they view the situation on UK debt."

    Yes. Also, there is a lot of risk in other asset classes. First, they have been inflated by a dollar carry trade which has to unwind at some point. Second, recovery is likely to falter as the stimulus effect fades.

    Despite these risks, PIMCO etc still don't want to own gilts, which speaks volumes.

    When debt markets take a negative view of government bonds, they're not saying that they think that government might default. After all, governments can print money (and ours has been doing exactly that).

    What they are really saying is: "yes, we know we'll get repaid, but that repayment will be in sterling - and what might the pound be worth by then, if you continue running things as you are now?"

    So the risk here is "soft default" through devaluation and inflation. That's the tight-rope that we're walking right now.



  • Comment number 47.

    ...much as this story is fascinating, the real story is in Iceland.

    What the Government has been keeping a lid on is the double whammy we are about to get hit with from the frozen island.

    Although the unpaid billions is a concern, it's not a huge amount for the Government - we can just slap it on top of the Billions we have already chalked up in a public deficit.

    ....however, the real crisis is in the £1bn owed to local councils by Icelandic banks. One of those banks (Glitnir) has stated it is no longer treating these councils as high priority creditors - and subsequently they can expect to get back less than a third of the value invested.

    Imagine you're a local council, you have not been able to access this cash since 2008, you're now told you might only get back a third of it - and no matter what Government we get there are going to be savage cuts in Local Authority spending.

    Watch your services disappear - I realise most Capitalists (like onward-ho) like you to concentrate on the ugly wastage such as field trips for council staff and bonuses for cheif executives - but in reality these are very small.

    Instead the cuts will affect people who cannot fight back, elderly transportation services, meals on wheels, school dinners, mental health support groups (the ones which stop you getting stabbed on the street by a crazy) - all services you will miss when they're gone (or maybe it's not you but your gran, or neighbour).

    The people of Iceland have bravely said "No we won't be paying for the banks mistakes" - and I sincerely hope we will do the same.







    http://www.stroudnewsandjournal.co.uk/news/4834467.Council_hits_hurdle_in_fight_to_recover___3m_from_Icelandic_bank/

  • Comment number 48.

    44.

    Of course.......every silver lining has a cloud!

    And no, you're not right. It's not a bad yield at all for a "risk free" return for 5 years. Still a lot of liquidity available for most asset classes, not just the QE money. Sat on the sidelines for over a year, now returning.

  • Comment number 49.

    45. MisterGC:

    Essentially correct.

    A big problem in the UK was that the BoE was instructed to target CPI 'retail' inflation, so asset price inflation got ignored. Hence, no action was taken to correct an overheating property market.

    This price bubble temporarily drove up economic activity because it (a) enabled equity release, and (b) created confidence. Meanwhile, of course, debt escalated

    The government seems to have been blissfully unaware of this, and therefore thought that the "boom" was both genuine and sustainable. They therefore felt it was safe to spend up to (and beyond) temporarily-inflated tax revenue.

    There are words for this. 'Idiocy' and 'hubris' spring to mind

  • Comment number 50.

    47. writingsonthewall:

    I understand your view re. Iceland and local authorities, but I have a problem with this as well. Let me explain.

    It had been obvious for at least six months that Iceland was heading for disaster. Popular newspapers' money sections started warning readers about this in March, long before the crash. I very much doubt if any private sector financial institution was still invested in Iceland when it crashed. Everyone who understands these things could see it coming a mile off.

    Now, I sympathise totally with private individuals who weren't aware of this risk. Mr Darling was right to reimburse them.

    But local authorities are a different matter. They employ supposedly 'expert' chief execs and chief financial officers, often paid more than the chancellor of the exchequer. Why are we council tax payers paying them huge sums if they aren't even 'expert' enough to have seen Iceland coming?

    This, I think, is why government didn't reimburse local authorities. It's a tough call, but shouldn't these 'experts' have paid with their jobs? I bet few if any did so.

    The snag in all of this is that 'little' people suffer and inept 'experts' keep their highly paid jobs and their inflation-proof pensions. Ultimately, we need more accountability.

  • Comment number 51.

    42. Friendlycard

    Sounds like we're reading the same stuff!

    Currently reading through CrashProof 2.0 by Peter Schiff, which is less apocalyptic but nevertheless highlights a lot of the flaws in the US economic model. Check out Peter Schiff Was Right on YouTube: http://www.youtube.com/watch?v=2I0QN-FYkpw

    I think this is just getting started. I think a dollar currency crisis in the next couple of years is distinctly possible - and that will be a painful for everyone (a sterling crisis is also possible...)

    * The Gulf states have just announced a new Gulf currency to avoid pricing oil in dollars.
    http://www.telegraph.co.uk/finance/economics/6819136/Gulf-petro-powers-to-launch-currency-in-latest-threat-to-dollar-hegemony.html

    * China is calling for new world reserve currency: http://www.bloomberg.com/apps/news?pid=20601087&sid=a5z7pjiZoYpg

    * as is the UN:
    http://www.telegraph.co.uk/finance/currency/6152204/UN-wants-new-global-currency-to-replace-dollar.html

    * another view from the Middle East was warning of coming market chaos and the decoupling of the dollar back in Nov 2007. http://www.ameinfo.com/140073.html


    OnwardHo's optimism is cheering but I'd like to know what its based on (few more links please OnwardHo - I would gladly be persuaded that everything is back to lovely but I can't make that viewpoint add up on current info)

  • Comment number 52.

    Re: Update - Is that 12% or 1.2%?

  • Comment number 53.

    Yawn. [Sorry, I'm reading ''Iron In The Soul'',Jean Paul Satre.It's catching !!]
    It would be unusual, giving the current bounce in the UK Stock Market, for there not to be an appetite for UK gilts.

  • Comment number 54.

    51. At 2:10pm on 06 Jan 2010, ArnoldThePenguin wrote:

    "Sounds like we're reading the same stuff!"

    Yes, and thanks for the leads. Chris Martenson has now produced his DVD in PAL format so we can watch it here. I strongly recommend it.

    Investors are betting on continuing dollar weakness - hence the carry trade (i.e. borrow in a depreciating currency and your real interest rate is negative).

    But this could snap back, albeit temporarily, even if the long-term trend for the USD is downwards. Roubini has warned about this in the FT - if the dollar carry trade unwinds, many asset classes could go into simultaneous crash. That could be very nasty indeed - '2008 Mark II'?

  • Comment number 55.

    48. At 1:50pm on 06 Jan 2010, morebalanceplease wrote:

    "And no, you're not right. It's not a bad yield at all for a "risk free" return for 5 years. Still a lot of liquidity available for most asset classes, not just the QE money. Sat on the sidelines for over a year, now returning."

    Ah - you're assuming Gilts are 'risk free' - with that type of logic surely you work in a bank - Risk measurement perhaps, or maybe compliance?
    Even if there isn't a default, the payment in 'wiemar-sterling' is not going to buy you much - except UK manafactured goods (of which there are very few).

    £200 Billion of QE (7% of 2008 GDP - a 'good year') tells me differently. The liquidity is only there because the Government are providing it.
    Both here and in the US there have already been calls to extend QE and a fear that an end to it will dramatically change the market and push interest rates up by 100 bps almost immediately penalising both the taxpayer and the mortgage holder - prompting further defaults and bankruptcy.

    The liquidity you are looking at is a mixture of illusionary Government intervention and blind panic from the investment world. It's 'hope liquidity' more than real demand.

    We've already have had a crisis in Banking, followed by one in the Economy, we've only got Soveriegn debt and Exchange rates to go - unfortunately both heavily contribute to making UK Gilts anything but 'risk free' - even for the short term.

    ...still - I suppose the markets aren't very good at predicting the unforseen events - which is why they didn't collapse until after the Northern Rock and Lehmans news was broken. The sovereign debt crisis won't get going in this country until we have an announcement from one of the ratings agencies or a similar country defaults.

    ....but I'm sure when you look at the sky all you can see is clear sky for miles...

  • Comment number 56.

    43 Matt Durbin:

    "However, as well as a strong manufacturing base Japan also has deflation, no natural resources, a highly protected economy (e.g. rice imports) and a rapidly ageing population. That doesn't sound like a great bet to me!"

    I heard an economist on TV (can't remember who) talking about global deflation following the credit crunch and saying "Its not so bad. Look at Japan - they've had deflation for years and still enjoy a good standard of living"

    With deflation, while income and cost of living goes down, debt remains the same - effectively rising as a proportion of living costs. For people who bought at the height of the property boom in Japan (with 50 year mortgages) this debt is likely to be passed from generation to generation. However, so far, Japan's trade surplus shows that it has managed to maintain the balance of trade (import of natural resources against export worth of manufactured goods) in its favour.

    Japan has had 28 years of trade surplus and 'only' 20 years of deflation. If Japan slips into regular trade deficits as a result of the global slowdown, I suspect this will begin to bite at home and the economy, supported by foreign markets, will shudder painfully.

    One other factor I just read (though not verified) is that 90% of Japan's debt is sourced internally - i.e. Japanese people, traditionally strong savers, buying govt bonds, meaning it is insulated from the bond markets and so has been able to run a deficit. However, the current Japanese govt spending spree, propping up the economy in the downturn, may bring that to an end.

  • Comment number 57.

    55. writingsonthewall:

    An excellent post. I, too, think that there's another crisis not far off, and if I had to bet, my money would be on UK sovereign debt as the catalyst this time.

    I tend to look at countries as one would look at a company. This one (UK plc) has got excessive costs, poor cash flow, a very weak balance sheet and atrocious management. I wouldn't buy shares in it!

  • Comment number 58.

    50. At 2:09pm on 06 Jan 2010, Friendlycard

    I do agree to a point, but surely private investors 'invest at their own risk' - so why should they be saved and not money held by local authorities (remember, as a tax paying icelandic bank saver - it's all your money in some way).

    Don't forget a lot of these LA's were 'advised by financial advisors' - where are they all now?
    I do agree there should be heads rolling for the 'chiefs' - but there are so many to choose from - where do you start?

    Don't forget that all roads lead back to Government, LA's have been asked to get 'best value for money' and there is probably a league table out there to show it - this includes getting the best savings rate for money held for the public - aka Icelandic interest rates.

    So when you look at the bigger picture, the Governments drive for targets in order to improve public services will result in tattered services for the next 10 years and the 'bailout' of some of the more exposed councils.

    Isn't it time we stopped pursuing short term targets and thought about the consequences a bit more?

    Weighing a pig constantly does not improve the quality of the meat or size of the pig!

  • Comment number 59.

    56. At 2:30pm on 06 Jan 2010, ArnoldThePenguin wrote:

    "One other factor I just read (though not verified) is that 90% of Japan's debt is sourced internally - i.e. Japanese people, traditionally strong savers,"

    This is totally true - Japan lived through the 'lost decade' quietly because they had huge personal savings - they just sort of 'shut down' for 10 years or so.

    ....you really wouldn't be wanting to go into a deflationary environment with high public debt and high personal debt would you now Brown / Obama?

    Surely it would be catastrophic.

  • Comment number 60.

    57. At 2:39pm on 06 Jan 2010, Friendlycard wrote:

    "I tend to look at countries as one would look at a company. This one (UK plc) has got excessive costs, poor cash flow, a very weak balance sheet and atrocious management. I wouldn't buy shares in it!"

    If you start buying into the Gilt market you could probably own it outright - not just have a share in it!!

  • Comment number 61.

    55.

    I am not assuming anything. (Hence the inverted commas). The buyers of the gilts are assuming they get repaid in full in 2015 and they are probably right.

    By the way, compare the £200bn of QE against the £trillions in UK pension funds and the balance sheets of UK banks and then tell me that QE is the only liquidity that is out there. It has to go somewhere.

    Never said there weren't any clouds.

  • Comment number 62.

    58. writingsonthewall:

    Yes, you make some extremely good points. There are inadequate sanctions where those paid highly by the taxpayer are concerned. I also agree entirely about the central government role in this.

    The target culture is expensive and wasteful. I've always thought it was Brown's way of trying to run the entire government from the Treasury before he could get Tony out of No. 10.

    A lot of this seems to come down to structures. We seem incapable of either electing or appointing anyone capable of managing things well for the taxpayer, or of ensuring that they are held to account when they get it wrong. We end up with compulsive blame-shifters instead of responsible leaders.

  • Comment number 63.

    60. writingsonthewall:

    "If you start buying into the Gilt market you could probably own it outright - not just have a share in it!!"

    And then fire the management, asset-strip it, and hand the proceeds to the shareholders - not a bad idea!

  • Comment number 64.

    51 ArnoldThePenguin
    As you know ,I think that the macroeconomy is an aggregate of millions,in the UK, and billions worldwide, of individual personal microeconomies and that the personal view of the world is impacted by and impacts on the greater picture.
    And as you have confirmed for us,Arnold, a lot of people have been having a terrible time of it recently.
    Who would have thought that a tele text message could attempt to change the leadership of the UK?

    Now last month I mentioned St Jude and hoped he could come up trumps....it would seem that has not happened......yet.
    Clearly action in the real world is needed ....let's put this matter into a more secular arena.

    ArnoldThePenguin is a well-informed, caring and capable chap or indeed chapess with lots of up-to-date skills .
    Is there anyone out there reading this blog who could give Arnold a job?
    Can a blog make a difference to an individual microeconomy of one person, ie Arnold ?
    This may not directly affect the government's credit-rating but it will make a difference to Arnold who will make a difference to everyone around him or her.
    So my fellow bloggers,I leave it up to you.
    What are blogs for.......a good moan ,or to make a difference?

  • Comment number 65.

    If Brown is ousted it could be disasterous for the UK Economy.

    No, onward ho, not for the reasons you are thinking of...

    We will get Alan Johnson who is personable and does not have connections to the Blair Brown misadventure. Consequently we have, at best, a hung Parliament, or, at worst, Labour back in after being given one more chance by a gullible electorate.

    Either way the Public Spending tap is not going to be turned off.

    If it looks like a Brownout then watch the Gilts market collapse.

    For once Brown putting himself ahead of the country will do the country a great service.

  • Comment number 66.

    64 onward-ho

    thank you Onward-ho - yet again you've put a smile on my face ;O)

    A lot of economists are split over whether we face inflation or deflation in 2010. Either way, when the chips are down its people that count. As Maximus Decimus Meridius says:

    "Whatever comes out of these gates, we've got a better chance of survival if we work together. Do you understand? If we stay together we survive."

    Although hopefully 2010 won't be bringing a re-enactment of the destruction of carthage complete with scythe-wheeled chariots... Even I am optimistic about that ;O)

  • Comment number 67.

    Anyone stupid enough to lend this government money so that they can "invest" it i.e. hose it up a wall, deserves what they get.

    Same principle with UK savers in Icelandic banks. If something looks too good to be true then it usually is. The Government had no right to bail savers out that are not covered by UK deposit insurance. The Icelandic people should tell the UK and Dutch governments to go forth and multiply in their upcoming referendum on the issue.

  • Comment number 68.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 69.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 70.

    I thought the Michael Spicer question at PMQ's about the possibility of stagflation interesting, however what was more interesting was the dismissive reply of the PM heralding himself as the low inflation PM when in reality inflation has been higher under Labour than the last 4 years of Tory government.

    We must be very close to a Government that will be faced with rising interest rates with no growth in the economy.

  • Comment number 71.

    It wouldnt surprise me that the QE operations have caused a shortage of supply of gilts in differing maturities. Short dated gilts, I read, are traded in a market with high liquidity and easier for DMO to sell.Couldnt current price/yield be more to do with demand/supply? Presumably shorter term interest rates affect demand and prove more expensive for Government fund raising anyway. Not sure this auction tells us much. I agree that longer gilts are the ones to watch.

  • Comment number 72.

    For what its worth I think Brown is a goner this time, after the previous failed attempts and having just watched Andy Burnham ob Sky completely back Brown I'd hazard a wild politically skeptical guess that he's the man lined up.

  • Comment number 73.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 74.

    If Pimco the world’s biggest bond house has decided to sell (as opposed to buy) UK gilts, it is not unreasonable to conclude that the reasoning behind its decision is shared by other investors.

    The DMO has (according to Mr Peston) around £200 billion to shift this year.

    Common sense suggests that this is likely impossible……… unless the Bank of England buys them of course.

    So I’m still back to the point where I think QE will get re-started at some point in the next few months.

  • Comment number 75.


    There is of course a more apocalyptic risk - which is that at some point investors lose patience with the government's failure to spell out precisely how it plans to cut public borrowing to more sustainable levels (which I've bored on about in assorted notes) and simply refuse to lend what the government needs.

    >>>>>>>>>>>>>>>>>>>>>

    Well that's a BBC way of putting it.

    How about a group of Soros type vultures with secret access to billions of pounds in bank capital, form a cartel and deliberately hold off from buying until the asset price drops substantially and 'win win' purchase emerges for them?

    Sounds far fetched - its probably already happening but the vultures are now just working out who (which government, currency, assets) to target and how and there isn't a regulator anywhere on the planet who is willin/able to stop this kind of negative trade and speculation.

  • Comment number 76.

    ...........Peter Mandelson will today attempt to dispel the conspicuous impression of a cabinet divided on the importance of restoring sound public finances...........

    Robert, what an indictment of the Brown Government that it should be necessary to get the Cabinet to agree on this issue. Brown gives the impression that nothing has changed and the deficit is merely a flea bite on our juggernaut economy roaring forward to conquer the world. Truly amazing and sad!!!!!!!!!!!

  • Comment number 77.

    UK government Gilts will sell (when offered on attractive terms) because the UK is not Iceland and because some buyers are fronting 'under buyers' who are other sovereign states, governments and interests and which spreads the sovereign debt assets/risk around the world.

    The bigger question is - who is buying and in what quantities and why?

    The UK taxpayer is the loser in terms of risk - short, medium and long term.

  • Comment number 78.

    Who says QE has finished?

    Also, The Treasury admitted secret £ billions of behind the scenes loans to banks recently - so what else is going on that we're not being told?

  • Comment number 79.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 80.

    78. At 4:38pm on 06 Jan 2010, nautonier wrote:
    Who says QE has finished?


    notinotinotinotinotinoti

    Logicaly the QU'rs wont stop till the end comes to justify the mein kamp

  • Comment number 81.

    Niall Ferguson doesnt share peoples optimism on the future of the Japanese economy. He points out that their huge welfare state is storing up massive problems in the coming years.

    Europe looks up the creek as well as the US, although China does need a strong West to keep its bubble going. They have a population who save around half their income which is then lent to the US at low interest.

    They need to keep the bubble going as long as we do as they dont have a consumer economy to fall back on.

    The West will be looking at mass migration from India and other countries to fill the void left by the baby boomers.

    It looks a painful world out there at the moment. The selling of gilts at this time in probably inconsequential as they are short term ones anyway.

    Lets see where we are in a year, although the challenged to Browns leadership could be real this time. I do have a little sympathy for him though, it seems like he has caught the ball at the wrong time, I doubt any party would have steered this country in a different direction during the last 12 years, consumers would have voted them out the first chanc they got if they curbed the spending.

    its a sad world where people dont understand money but we are about to see the pay back for our waste!

  • Comment number 82.

    68 69 73 79 down clearly them odereaters have yet to lap up 80 while its piping hot. hint the " me... in camp"

  • Comment number 83.

    I hope the incoming cash will be used wisely, not blown on hopeless military adventures, subsidising bankers, a bloated civil service and inefficient public sector, or, worst of all, bringing in managers to cut costs.

    Where should the money go? Education, especially schools and the old universities, research, small businesses, manufacturing, health (the medical service, not the useless administration)....., sending Peter Mandelson on a long holiday.

  • Comment number 84.

    The docturd markets will be testing the QE'r waters let us hope they do not suck/bite off more than they can eschew

  • Comment number 85.

    wolfie your first paragraph in 83 is the Labour manifesto

  • Comment number 86.

    83. At 5:14pm on 06 Jan 2010, WolfiePeters wrote:

    I hope the incoming cash will be used wisely

    =============

    It was squandered long ago; don't you read the newspapers?

  • Comment number 87.

    The government should borrow every penny it can at current rates and bank the proceeds in Gold, Euro or Swiss or any currency other than sterling.
    When interest rates rise, as they will, the borrowings will look cheap.
    Unfortunately this government would "invest" it.

  • Comment number 88.

    If all the doom-mongers who contribute to this site are correct, British Government Bonds will sell-off within weeks as Pimco and other holders race to disinvest before those Bond prices fall. As doom-mongers predict.
    But if I'm right that there's no such threat, UK Bond yields will maintain their RELATIVE value vs US, German & Japanese Bonds.
    Let those Bond Holders decide!
    And if the UK is truly going to hell in a hand-cart, British households will stop their spending spree and UK output will stagnant. Let those economic actions speak for us all!

  • Comment number 89.

    I understand perfectly what you are saying but not many people in this country will. Is there not a way a programme could be on television to explain this in a much easier way so that more people could understand and realise what is happening in this country and what danger we are in. We are already a laughing stock in the world just because one man decided he had to be right no matter what the outcome.

  • Comment number 90.

    Interesting article on bloomberg on the year ahead:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6oJ.p_VFnSw

    "Governments are pouring untold trillions of dollars into economies financed with fresh bond issuance. The debt glut is as unprecedented as it is unsustainable. Expect credit-rating companies and investors to be sniffing around for potential debt crises, be they in China, Greece, Japan or Vietnam. "

  • Comment number 91.

    I was pleased to note that one comment put National debt at £48,000 per worker in four years time.

    I have expressed it as £48,000 per worker today, given some 48% of the population work and the debt per person exceeds £24,000. The £20b additional debt raised by the sale of Gilts in November added £700 per worker when many don't even earn £700 per months. Of course tax is raised from other source and not just income tax.

    Apart from the BofE only having £8b of QE left to spend on Gilts, PIMCO, the worlds biggest sovereign bond debt buyer will not be buying anymore UK Gilts and is making big noises about the risk.

    I also promote the message that "halving the deficit over four years" (first mentioned in the US) actually means the opposite. The listener will assume that we will halve the deficit when what we intend to do is halve the "annual deficit" from £178b pa to £89b pa over four years. In four years time we will still be borrowing £89b pa and the National Debt will have increased from 60% of GDP to 100%.

    Please tell "leftie" who might also note that when discussing the Fiscal Responsibility Bill only one Labour backbencher attended.

  • Comment number 92.

    Are we really out of recession when GDP returns to positive?

    I don't think so. Your personal GDP doubles this week if you take next weeks wage as a sub. Together we all took an average sub of one year's wage over the last decade (£1.4t). Taking this figure alone and excluding Government debt (soon to be £1.5t) and corporate debt and distributing it over 10 years it approximates to a GDP of 10% pa based on subs. This reduces the historic GDP from approximately 3% pa to minus 7% pa.

    This is only looking at the wage element of GDP but it gets worse if you build in corporate and public debt. We need a better measure than GDP if GDP is not going to be adjusted for credit. Should we all slap each other on the shoulder because our income had doubled this week when we have all take a weeks sub?

  • Comment number 93.

    As in another thread, someone mentioned the fault isn't with G Brown as he may be a genius. Ha ! Then if so he has got completely lost in getting his message across to the masses.What a terrible mistake the country has to bear. So now with Hugo Chavez devaluating his oil rich currency what next ? who's next. For the UK rely on Gilts is mighty risky and will seen as overpriced if other currencies devalue, then we shall be over vaccinated by a surplus that nobody wants...logical course is devalue Sterling to keep up. If neg equity Euroland tumbles then Sterling and the dollar look too strong.Is that what Brown is banking on ? Wait until the cyclic phase self corrects itself ?

  • Comment number 94.

    Answermethis, Why is no-one shouting about the ludicrous price of petrol these days when a litre of the stuff cost (commonly) 115p and a barrel costs only $81. In July 2008 the litre price was at most 125p and a barrel cost $150? Even adding on 20% to the current barrel price to allow for the strengthening dolar against sterling, a barrel now would only cost $96. That still leaves oil at $55 cheaper now than July 08 and yet the price now is almost the same?

    CarShare anyone?

 

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