Tuesday, December 02, 2008

Markets Deliver Damning Verdict on Government Borrowing

In the PBR the Chancellor, at a stroke, doubled government debt to more than £1 trillion. The Conservatives warned at the time that this sort of economic recklessness would weaken market confidence in the UK economy.

Figures released this afternoon appear to show this is already happening and as a consequence the market view of the risk of the UK Government defaulting on its debt has reached a record high. The Tories say...
"The markets now rate the default risk for UK Government debt higher than that of Portugal, Belgium, the Netherlands, France, Finland, Germany and Norway, a judgement largely based on the government's decision to take on unprecedented borrowing in last week's Pre-Budget Report. Over the last year, the perceived default risk for the UK has increased almost 15-fold.
"The cost of hedging against default on bonds is shown by the credit default swap spread (the CDS spread). On December 1st, the closing spread on UK 5 year government debt was 99.4 basis points.   On December 2nd, Bloomberg reported that the intra-day credit default swap spread for 5 year UK government debt had reached a new record high of 106.5 basis points.   On December 3rd 2007, the CDS spread was 7.2 basis points.
"German government credit default swap spreads on December 1st were 38.1 bp, Norway: 32.3 bp, Finland: 48.4 bp France: 54.4 bp, Netherlands: 66.1 bp. Belgium: 74.5 bp and Portugal: 99.2 bp."
No wonder Fox News had that ticker about Britain going bankrupt. Can Gordon Brown really keep a straight face next time he tells us that our economy is better placed than our main competitors? He must know what an outright lie he is telling, or is he doing the equivalent of a spolit child sticking its fingers in its ears and shouting "La la la, not listening!"?


Oliver Drew said...

It is only a matter of time before the UK economy, or more aptly, confidence in the UK economy, collapses completely.

However, unlike LabourHome think - I am not committing treason by saying that, I'm simply stating facts!

Trumpeter Lanfried said...

I don't understand the jargon. Can someone explain, please?

Boo said...

Has anyone seen Gord recently?

He's seemed to have gone AWOL for some reason

kinglear said...

Iain, from day one in 1997, despite having a grudging admiration for TB, I have been convinced that Brown knows absolutely nothing about economics, about markets, about trading, or even about how life really works.
What idiot thought it was a good idea to tell the markets that the UK was about to sell most of its gold?Brown. What idiot thought it was a good idea to split overall responsibility for financial regulation so everyone could duck the issue? Brown. Who thought it was a good idea to swipe - oh lets just say £150billion from pension funds? Brown. Who thought all you have to do is throw money at things to make them work better?Brown.
I could go on but it's too depressing.
Every - every - business person knows its doing the most with the least that counts.
Brown and Labour generally think exactly the opposite, doing the least with the most.Spit.

Anonymous said...

Not Gordon's fault, of course.

Oh no.

The Americans ... the Tories ... Haringey Council ... Damian Green ... Bloggers ... George Osborne ... Tony Blair ... old people ... young people ... it's their fault, do you see.

And now that dashing, handsome, sophisticated, elder statesman (that's sarcasm there, for those that missed it) knows he must ride to the rescue of us poor, dumb mortals and save the world.

IMHO he should be charged with treason ... few people in history have done more to endanger, damage and divide this country.

kinglear said...

.. And by the way, Unilever's CDS are lower priced now than UKplcs. Great advertisement for Prudence.

Anonymous said...

We're screwed - right royally thank to Brown's absolute mismanagement of what was a solid economy. I think most sensible people are resigned to it only being a matter of time before the bottom will entirely fall out of what's left of our ragged economy.

The last 11 years of labour fiscal rules has been based on nothing more than wildly overstated-figures, uncontrolled credit, weak regulation and the belief that the government could spend money it doesn't have, hide it from the public, and treat the tax payer with contempt while we line the public sectors gold plated pension plans.

strapworld said...

Ripe for communism then?

or National Socialism?

Man in a Shed said...

Note the German response yesterday from Angle Merkel as reported by your Telegraph chum David Wroe Berlin.

"A bidding war ... a senseless race for billions – we won't take part in that," she said.

Spot the following Gordon international leadership to save us all from the problem that started in America and is impacting hard working families leading to a "it is right that" fiscal stimulus - NOT.

Also note that the government, along with the Italian government, is now finding it hard to sell its debt.

They may be able to pull the wool over Daily Mirror readers eyes with their token higher rate of income tax - but nobody who is being asked to part with Cash for Gordon debt fuelled pre-election binge is fooled.

someday said...

Are the CDS spread figures available on the Web? I can't find them.

The Empty Suit said...

ITV news has just run the story that the Met claim to have started their investigation into Damien Green only after receiving a letter from the Cabinet Office suggesting that they start investigating a threat to national security

Jimmy said...

Gosh. That's going to run a coach and horses through the government story that the complaint was initiated via the Cabinet Office.

Andy said...

Those of us who are middle aged have been here before. Every Labour administration ends the same way; massive debt, a run on sterling and going cap in hand to the IMF to bail us out. Labour's hatred for anything non statist drives them,lemming-like, to this sorched-earth economic policy. This is followed by years of conservative government sorting things out.

How very predictable, and sad.

Colin said...

Where the f*%k is that twat McCavity?

Trixy said...

Did you know, my lovely one, that HSBC is considered a lower risk than the UK?

A bank that we, the lovely and generous tax payers are propping up?



NameHere said...

Trix, HSBC did not take Government money ... we're not propping that bank up. It's one of the safest banks in the world, there is no wonder it is seen as less risky than Brown's UKplc.

evil g said...

The Conservative argument does not seem a very sexy message, but the polls suggest that the public is deeply sceptical with the labour's "buy now pay later" economic policy.

Bill Quango MP said...

Trumpeter Lanfried said...
I don't understand the jargon. Can someone explain, please?

Delighted to.
Imagine a monopoly board and five players.
Brown is holding Kings cross.. water works {mortgaged}, Whitehall, and Old Kent Road and Whitechapel with a hotel on each.
Net income a maximum of £450 + £200 for passing GO and £100 say from other cards,properties etc.

All the other properties are taken and have houses and hotels on all the sets.

Brown has to traverse the board each round hoping that others land on his properties and he avoids theirs.
he has long ago landed on Mayfair and given his remaining cash to the owner.
So he has developed a scheme where he can defer payment of any amount he owes to when he next passes Go, but at a rate of fee plus 20%.

He lands on his old favourite of Islington and owes £550.
He uses his loan option and now owes £670 this turn.
The other players now discuss with each other on whether he can pay that back from his income stream, with all the hazards he still faces, while still having to traverse the rest of the board.
Hope this helps

Adam Penny said...

I think the UK needs to find away to incentivise UK manufacturing growth fast and try to reap something from our weakening currency.

Not a sheep said...

If Gordon Brown says the UK economy is best placed then it is; he is the PM, only he knows what the true position is. Anyone who disagrees with him is at best just talking down the economy, at worst committing an act of terrorism.

JoeF said...

On the basics- what fun, UK debt now rated lower by market than Portugal!

On the jargon, this is what it costs someone to insure 5 year Government debt against default. So if cost is 100bp, that is 1%. Hence at start of Dec, if anyone wanted to insure against default on such UK paper, they had to pay a premium of 1%.

That is by no means very high risk (some countries- eg Iceland, got well over 1,000bp, but then they had to go to IMF), but it is 3x Germany, more than Portugal, etc.

Ruth Kelly's plaything said...

BBC last night: 'Germany 40 basis points; UK 100 basis points...that means the markets view UK govt debt as a teeny bit more risky than some others...'


No wonder they're being sent to Salford - there they can take instruction direct from Chipmunk Blears.