So far no problem.This means that buyers of the sold gilts are getting a higher intetest return on these bonds. Now (here is my disconnect) this is said to be creating a problem for the UK government . . .
Where's the additional problem for the UK government due to this, since the cost of the bond coupon remains the same and the eventual repayment of say a £100 bond will be unchanged?
Yes, although this is slightly further down the road and a problem for the UK economy as a whole rather than specifically a problem for the government.Is it because higher rates available in the gilts trade siphons away funds from competing financial markets and these are forced to up their rates in response to the new market conditions ?
Truss and others in the UK government believe that growing the economy reduces the debt burden in relative terms. Arithmetically this is true, and apart from environmental concerns this has long been considered a sound policy objective.So, if this is all eminently predictable to those schooled in macroeconomics, why have they done what they've done ?
If only we pooled our currency with part of a bigger block. That might have the strength to withstand bond market jitters.if the bond markets can frighten a country as big as the UK, frightening a country as small as Ireland will be chicken feed - get ready to welcome back the Troika
Nonsense., it has nothing to do with the size of the economy. It has to do with confidence and ability to pay back. Ireland never had an insolvency problem, it has a liquidity problem as evidenced by its ability to pay down borrowing since 2007. The country has produce positive balances of trade for decades and that makes all the difference, because as Swiss bankers say - if you are selling more that you are buying you will eventually work your wait out ant financial difficulties. All through the last crisis we advised Swiss clients to continue and increase their investment in Irish bonds based on this simple analysis and they did very well out of it. And today the SNB holds a large block of Irish bonds as part of its reserve. The future is never the same as the past and you need to move on.if the bond markets can frighten a country as big as the UK, frightening a country as small as Ireland will be chicken feed - get ready to welcome back the Troika
I agree that housing is Irelands biggest issue, from a social as well as an economic perspective.But Ireland's issues pertain more to a government impeding new housing than our treasury situation.
But what about 2010, the markets didn't believe that Ireland had a liquidity problem but an insolvency problem that's why the interest rates on Irish government bonds rocketed then and Ireland had to go to the IMF to bail itself out as the bond markets effectively would not lend to Ireland . Yes the treasury management agency has managed the Irish government debt very effectively by managing to refinance a lot of it at very low interest rates before the latest big rises in interest rates. But we shouldn't get overly complacent or smug about the problems the UK is facing right now, we have a much higher per capita debt load than the UK and among the highest in Europe .Nonsense., it has nothing to do with the size of the economy. It has to do with confidence and ability to pay back. Ireland never had an insolvency problem, it has a liquidity problem as evidenced by its ability to pay down borrowing since 2007.
The way to think about government bonds is that there are huge amounts of them outstanding, being traded all the time, but new issuance is very small. Ballpark 1% of total outstanding government debt is paid back and issued again every month. That's not very much.Please excuse my macroeconomic innocence as I am but a humble rustic bumpkin engineer.
FWIW I don't think the UK will in any meaningful way default. It issues all debt in its own currency so the worst that can happen to investors is inflation. They will still get their money back in sterling, it just might not have the purchasing power it once did.
You forgot to mention cuts in government spending, we had to do that during the eighties and during the bailout, it wasn't a choice either remember,people won't pay large increases in taxation unless they see cuts in government spending as well, they vote with their feet and leave the country those that are young and skilled anyways.However the impact of high rates can spread through the stock of debt over the course of a number of years. When you model this you model less money for government to specnd which means more taxes, probably less growth, and less tax to service debt from.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?