In order to fund its massive borrowing requirements, the government has been selling bonds (gilts) to investors. However, last month, for the first time in seven years, there were not enough buyers for the £1.75bn of bonds offered for sale. In short, not enough potential investors were prepared to stump up for the returns on offer. Downing Street insisted people should “not read anything” into the failure as it reflected specific pricing conditions rather than a broader problem. How we laughed. Whoever said that would probably call the window cleaner a vision technician. Of all the empty headed comments issued by government apparatchiks (both internationally and the UK) since the crisis broke, this is right up there with the best.
Allow us to translate. People should read everything into it because it reflects how queasy investors are getting with regard to the UK’s perilous financial state. Gordon Brown is spending at a rate that makes Viv Nicholson look like Ebenezer Scrooge. Never before have we seen deficits on this scale.
Robert Stheeman, head of the UK’s Debt Management Office, which runs the bond auctions, partially blamed the Bank of England (B of E) for the failure to attract sufficient bids. This refers to the B of E buying gilts via quantitative easing and comments by governor Mervyn King, the day before, when he warned that the government could not afford another fiscal stimulus. Not that Mr King wasn’t correct but you can see why Mr Stheeman is a bit miffed. His role is to conclude gilt auctions successfully and he can perhaps see that due to the impending tsunami of government debt, his job may resemble selling fridges to eskimos.
Usually, the government will stay clear of making comments regarding monetary policy because that’s B of E territory. Equally, the latter will refrain from commenting on fiscal policy as that is the government’s baby. However, it is understandable as to why Mr King may have decided to cross the line. He looks down the road and sees a multiple pile up, the result of Mr Brown’s reckless driving. He is, therefore, unbuckling his seat belt to give himself a better chance of being thrown clear of the wreckage.
While all this was going on, the Prime Minister embarked on a world tour that would put the Rolling Stones to shame. He was looking for support to back his and Mr Obama’s economic stimulus plans prior to the London G20 Summit. The irony is he could have spared the planet the air miles and simply flown to Prague and listened to Czech Prime Minister, Mirek Topalanek, who described such plans as “the road to hell”. An even greater irony is that the chaps from the former communist East seem to understand it far more than the free market Anglo-Americans do.
John Newsome can be contacted on: 01423 705123 or email:john.newsome@williams-im.com
