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The Gamblers Betting On Britain Going Bust

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http://www.telegraph.co.uk/finance/comment/edmundconway/7798450/The-gamblers-betting-on-Britain-going-bust.html

This paragraph is important:

These, for Mr Osborne, are happy accidents. But they cannot disguise other, more ugly features of the economy. While most investors have happily fixated on Britain's advantages, they have conveniently forgotten the fact that around four fifths of the Government's liabilities are linked to inflation (including both our index-linked bonds and off-balance-sheet nasties such as public sector pensions and the costs of the Private Finance Initiative). Eroding our national debt significantly without cutting back (in particular, state and public-sector pensions) would take a bout of hyperinflation, which would have all sorts of consequences.

The index-linked bit is key, and the part of the story not often talked about. This makes sense. Of course the UK doesn't need to re-new its debt regularly - creditors know they won't get shafted by inflation (presumably the debt is RPI- and not CPI-linked!), so why benefit from a longer-term rate? The UK cannot inflate without getting into major trouble.

This was news to me, anyway. I like Conway at the moment.

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ISTR Osborne promised some more pension flexibility, including dropping the requirement to buy an annuity at 75.

The more hint there is of default, the more that matters, given the pool of funds on which annuity providers (are required to) rely.

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http://www.telegraph.co.uk/finance/comment/edmundconway/7798450/The-gamblers-betting-on-Britain-going-bust.html

The index-linked bit is key, and the part of the story not often talked about. This makes sense. Of course the UK doesn't need to re-new its debt regularly - creditors know they won't get shafted by inflation (presumably the debt is RPI- and not CPI-linked!), so why benefit from a longer-term rate? The UK cannot inflate without getting into major trouble.

Inflation could still be quite useful to reduce public sector pay / pensions indirectly without the union strikes and riots that Greece had.

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Why should GB go bust when it can print pounds to pay its debt, which is denominated in pounds?

It might make the error of printing too much and letting inflation out of the bottle, which would mean we would have to pay more for our credit.

But betting on the UK going bust, especially when there are other bets out there, seems misplaced to me.

(Although I did have a quick heads up, look about online, to actually make sure the train hadn't whacked into the buffers while I was typing, before selecting the "Add Reply" option.)

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around four fifths of the Government's liabilities are linked to inflation

Note that the proportion of index-linked gilts out of total gilts issued is much lower than this - only about 25%. It is entitlement programmes, PFI , pensions etc that bring the overall proportion to 4/5.

I agree - buying and holding UK CDS is a complete waste of money, but default/ "restructure" of the other liabilities (esp pensions) is inevitable.

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The index-linked bit is key, and the part of the story not often talked about. This makes sense. Of course the UK doesn't need to re-new its debt regularly - creditors know they won't get shafted by inflation (presumably the debt is RPI- and not CPI-linked!), so why benefit from a longer-term rate? The UK cannot inflate without getting into major trouble.

You just add house prices to the inflation basket and all the problems go away.

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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