Are the forecast budget deficits sustainable?

Generali

I voted that it's sustainable but frankly I have no idea why. Where's the money going to come from unless the BoE is going to 'print' money? I just don't see Gilts as being that great an investment at current interest rates or even close to.

'So what', you may say, "the Government can just sell index linked Gilts'.

That rather undermines the supposed plan in place which is to inflate the debt away.

Rochdale_Pioneers

Generali wrote: »

I voted that it's sustainable but frankly I have no idea why. Where's the money going to come from unless the BoE is going to 'print' money? I just don't see Gilts as being that great an investment at current interest rates or even close to.

I've asked this question. I suppose that if you are a high-level speculator with an ocean of cash to invest, you have to find somewhere to put it. You get nothing with it in the bank, cash is risky with volatile exchange rates, the stock markets are in turmoil with institutions collapsing, so why not Gilts?

Its not how the UK will sell its gilts that concerns me, its how the UK, france, Germany, the US, Japan etc etc will all sell them together.

Wookster

Rochdale_Pioneers wrote: »

Its not how the UK will sell its gilts that concerns me, its how the UK, france, Germany, the US, Japan etc etc will all sell them together.

If you were an investor, you'd want to put your money where its safest. A country that is running up debt like its going out of fashion is probably fairly low on your list of where to invest.

Rochdale_Pioneers

Wookster wrote: »

If you were an investor, you'd want to put your money where its safest. A country that is running up debt like its going out of fashion is probably fairly low on your list of where to invest.

Lower than somewhere like Japan where debt is quadruple our own?

JayScottGreenspan

Wookster wrote: »

If you were an investor, you'd want to put your money where its safest. A country that is running up debt like its going out of fashion is probably fairly low on your list of where to invest.

Investors will certainly demand an interest rate premium if they feel debt is getting to levels that will necessitate inflationary measures to devalue it.

Either that or they tell you to naff off and make an appointment with the IMF.

JayScottGreenspan

Rochdale_Pioneers wrote: »

Lower than somewhere like Japan where debt is quadruple our own?

Japan's economic plight is a warning from history.

It is not a target.

Generali

Rochdale_Pioneers wrote: »

I've asked this question. I suppose that if you are a high-level speculator with an ocean of cash to invest, you have to find somewhere to put it.

You get nothing with it in the bank, cash is risky with volatile exchange rates, the stock markets are in turmoil with institutions collapsing, so why not Gilts?

Because funds have what is known as a 'mandate'. That is the 'philosophy' (bad word but can't find a better one) behind the investment.

An example of a mandate could be (taken from a hedge fund website but it could as easily be the Pru or Fidelity):

Policy and Objectives
The twin aims are first the preservation of capital, and then a total, absolute annual return of 1½ to 3 times greater than the yield on the UK 10 year government bond (i.e. approximately 7½ to 15% p.a.), through investment in listed equities meeting Bedlam’s proprietary ‘self-funding takeover’ criteria. The investment area comprises the UK, with up to 15% in foreign securities in sectors not well represented there. Normally the fund holds 25 to 50 securities, uses simple index put options to preserve capital and can default up to 60% in near-cash.

The above states the aims and the promises that the fund gives to investors. The fund can't put all it's money on trap 4 in the 6:04 at Brighton any more than it can invest in Gilts.

Rochdale_Pioneers wrote: »

Its not how the UK will sell its gilts that concerns me, its how the UK, france, Germany, the US, Japan etc etc will all sell them together.

That's my concern, especially when the obvious Government buyers, those who have been running surpluses recently (Aus, China and Saudi for example) are now running deficits.

My guess is nationalisation of pension funds.

Wookster

Rochdale_Pioneers wrote: »

Lower than somewhere like Japan where debt is quadruple our own?

That is such a straw man argument. "There are people always worse than you, therefore you'll be ok." Its like a saying wow, I've only broken my arms and my legs when some poor mucker has broken his neck.

Perhaps you should change your name to straw man.

Rochdale_Pioneers

Wookster wrote: »

That is such a straw man argument. "There are people always worse than you, therefore you'll be ok." Its like a saying wow, I've only broken my arms and my legs when some poor mucker has broken his neck.

Perhaps you should change your name to straw man.

*sigh* Originally Posted by Wookster
If you were an investor, you'd want to put your money where its safest. A country that is running up debt like its going out of fashion is probably fairly low on your list of where to invest.

So debt is the scare factor? So what is scariest? A country running up debt towards 79% of GDP? A country thats already run up debt closer to 250% of GDP? Your logic, not mine.

If debt is a "straw man argument" then its YOUR argument!

Graham_Devon

Are forecasts sustainable?

When Alistair Darling admits he just "made up" the 50p tax because "he thought" it was appropriate, I don't think we can rely on any government forecasts. He stated this was to pay off debt, then says it was simply because he thought it was right....not some actual mathematical based policy.

This government is going down the pan completely, it's just a shame that if they are going down, they are going to drag the whole country down with them in spite.

http://www.telegraph.co.uk/news/newstopics/politics/5244756/Alistair-Darling-admits-he-plucked-50p-tax-rate-figure-from-thin-air.html