There is a shortage of government bonds – and the way to solve it is for governments to borrow
Hmm, the FT:
A wide variety of investors and corporations prize the highest-quality government bonds for their cash-like qualities — and the near certainty of getting their money back. This demand has grown since the financial crisis as central banks hoover up a hefty slice of bond markets under quantitative easing programmes.
So why’s there a shortage? Because the central banks have a stock of bonds through QE. So, what should we do? Issue more bonds so that the central banks have to buy more to keep interest rates low? Or, if we need more bonds, why don’t they sell off their QE bonds?
Or, even, how can we say there is a natural shortage of government bonds when we’ve that artificial, engineered, shortage from QE?
Someone has got something wrong here. And let me suggest it is the politicians. The reality is that the demand for government bonds is real, continuing and unlikely to dissipate for a long time, with QE as a back top if it ever does.
But QE is the cause of the shortage……
Who pays for the borrowing?
Sure, its nice to spend an extra £50 billion in a year. What politician would turn that down?
But at some point the borrowing is repaid. At some point there is a cost to the borrowing.
Who will load the grandkids with debt such that half the annual budget is to pay for borrowing simply to satisfy Spud?
@Martin – in spudworld govt spending pays for itself in increased tax revenue/reduced benefits paid out, so the more the government borrows the richer we become. Strangely Government debt keeps on rising despite borrowing more and more money. Go spudlogic.
Martin said:
“Who will load the grandkids with debt such that half the annual budget is to pay for borrowing”?
Boris, from the way he’s making spending promises like a drunken sailor.
Inflation pays the debt. The Napoleonic Wars? Probably cost three and sixpence by the time we paid for it.