Dumb question

michaels

There was a bbc talking head pro remain on this morning looking at charts that were less volatile than earlier in the year threatening all sorts of dire brexit consequences including a shift from equities to gilts at the same time as an increase in interest rates:rotfl:

Generali

michaels wrote: »

There was a bbc talking head pro remain on this morning looking at charts that were less volatile than earlier in the year threatening all sorts of dire brexit consequences including a shift from equities to gilts at the same time as an increase in interest rates:rotfl:

It seems pretty unlikely that Gilts would be seen as a safe haven in case of a Brexit.

westernpromise

Gangaweed wrote: »

Funny then, that after the credit crunch in 2008/09 that when the pound fell, interest rates were cut, rather than raised, as has been promised by various stooges of the remain campaign.

Rates are generally raised to choke off inflation. Higher rates take money out of people's pockets which reduces demand in the economy which reduces inflation.

They are a shotgun type of weapon though because most debt is held by people who are in the early stages of buying a house while most disposable income is in the hands of those who've finished doing so. So the effects are felt mainly by people who weren't the cause of the excess demand and have no surplus income to give up.

The reason for lowering rates in 2008 - 9 was not to do with inflation, though, which was and remains muted. It was to encourage people to keep spending by making existing debt cheaper. It sure worked on me, the interest on my BTL went down from £15,000 a year to £3,000 a year.

westernpromise

michaels wrote: »

There was a bbc talking head pro remain on this morning looking at charts that were less volatile than earlier in the year threatening all sorts of dire brexit consequences including a shift from equities to gilts at the same time as an increase in interest rates:rotfl:

I think it's fair to say that nobody has an earthly what will actually happen in the wake of a Brexit vote. Not even Brexit is nailed on.

In 1992 White Wednesday was perceived as a disaster and a humiliation but in fact it was the start of a spectacular run of economnic growth.

Any negatives from a Brexit vote could be quickly reversed by things like a similar vote by other countries - the Nordics, the Dutch and even the French are not all that enthusiastic.

Malthusian

Generali wrote: »

It seems pretty unlikely that Gilts would be seen as a safe haven in case of a Brexit.

While I'm not going to argue that we won't see a fall (or some sort of volatility), does anyone think that there is a serious prospect of the UK defaulting on its sovereign debt post-Brexit? Do the Chinese (who I understand own most of our debt) particularly care about Brexit or think that it will lead to us defaulting?

The US isn't in the EU and US Treasury bonds are still seen as a safe haven. (Yes, the US is bigger than us, but big does not automatically mean creditworthy. If anything I would consider the US more likely to default, based on the fact that it has more power to get away with it.)

CLAPTON

Malthusian wrote: »

While I'm not going to argue that we won't see a fall (or some sort of volatility), does anyone think that there is a serious prospect of the UK defaulting on its sovereign debt post-Brexit? Do the Chinese (who I understand own most of our debt) particularly care about Brexit or think that it will lead to us defaulting?

The US isn't in the EU and US Treasury bonds are still seen as a safe haven. (Yes, the US is bigger than us, but big does not automatically mean creditworthy. If anything I would consider the US more likely to default, based on the fact that it has more power to get away with it.)

imposssible as we can just print more money

Generali

Malthusian wrote: »

While I'm not going to argue that we won't see a fall (or some sort of volatility), does anyone think that there is a serious prospect of the UK defaulting on its sovereign debt post-Brexit? Do the Chinese (who I understand own most of our debt) particularly care about Brexit or think that it will lead to us defaulting?

The US isn't in the EU and US Treasury bonds are still seen as a safe haven. (Yes, the US is bigger than us, but big does not automatically mean creditworthy. If anything I would consider the US more likely to default, based on the fact that it has more power to get away with it.)

No, I don't think that there is but it does make Gilts more risky for foreign holders because of perceived FX rate volatility. You can be sure that the spread between bunds and Gilts would increase on a Brexit vote for example.

mwpt

CLAPTON wrote: »

imposssible as we can just print more money

Technically it is true that we can print money to repay debts but it is a rather meaningless statement because to external investors, receiving payments in a massively devalued currency looks pretty much the same as a default.

Generali

mwpt wrote: »

Technically it is true that we can print money to repay debts but it is a rather meaningless statement because to external investors, receiving payments in a massively devalued currency looks pretty much the same as a default.

....and investors will want compensating with a higher yield which brings us back to why rates could rise, and yields almost certainly will, upon Brexit.

michaels

The markets moved from pricing in a possible to brexit to pricing it as an outside bet today: total move less than 2%. I think this gives a better idea of the order of magnitude of any brexit effect on the currency and stock markets.