What Happens If Cannot Finance Deficit?

[Ash4781]

http://business.timesonline.co.uk/tol/busi...icle3558517.ece

Peter Spencer, economic adviser to the Ernst & Young Item club, which uses the Treasury’s own model of the economy, warned that Britain would suffer because of the so-called twin deficits, the fact that both the budget and overseas trade are heavily in the red.

“The obvious risk is that tax revenues will follow the credit markets and the economy down, bringing a large overshoot in public borrowing,” he said.

“But the real worry is that the whole UK economy relies on the international wholesale banking markets for finance. The Treasury forecast shows balance of payments deficits of more than £70 billion. It is hard to see how these deficits can be financed even if wholesale funding routes are reopened. If they are not, the consequences for sterling, the housing market and ultimately the public finances could be catastrophic.”

That is not the only area of vulnerability. Robert Barrie, an economist with Credit Suisse First Boston, said the chancellor was “probably right” to say Britain’s economy is well-placed to weather the difficult year ahead. The real story for the City, however, was the announcement that, partly as a result of Northern Rock, a record £80 billion of government bonds - gilts - will need to be sold to fund public borrowing over the coming year.

“The government plans to sell more gilts than it ever has before,” he said. “The problem may come if liquidity and the market more generally isn’t up to it.”

The way in which it could all go wrong is sketched out by the Treasury. “The extent and duration of the disruption and the feed-through to credit conditions faced by households and companies, and thus private-sector spending, remain highly uncertain,” it said. Consumer spending and investment could weaken sharply. Unemployment, which the Treasury assumes will edge up in line with independent forecasters’ projections, could surge. The dangers are there.

David Smith and Dominic Rushe in New York. Some good bits in the article (Blackstone note about GE winding down credit arm)

I didn't hear the budget speech but the balance of payments deficits to hit 70bn. Can't be right! If he can't finance this in the wholesale markets he'll have to go through NS&I to the public right ?

High inflation, and higher interest rates to come then. Falling real wages.

Bah we're completely stuffed!

http://www.statistics.gov.uk/cci/nugget.asp?id=194

Source:ONS

Edited March 16, 2008 by Ash4781

[Injin]

http://business.timesonline.co.uk/tol/busi...icle3558517.ece

David Smith and Dominic Rushe in New York. Some good bits in the article (Blackstone note about GE winding down credit arm)

I didn't hear the budget speech but the balance of payments deficits to hit 70bn. Can't be right! If he can't finance this in the wholesale markets he'll have to go through NS&I to the public right ?

High inflation, and higher interest rates to come then. Falling real wages.

Bah we're completely stuffed!

http://www.statistics.gov.uk/cci/nugget.asp?id=194

Source:ONS

WE aren't, the government is.

I keep saying it -

State failures. This is all about state failures. Uk and US and other government are about to slide into history, taking their centrally planned nonsense with them, thank ******.

[jdc]

While a gilt strike is not out of the question in the medium term, the closure of the interbank lending markets makes government borrowing cheaper, since governments are seen as a good credit risk, and lenders who no longer want to lend to businesses and banks are offering governments money at lower and lower rates. Meanwhile Government borrowing levels remain close to average by historical and international standards.