Tuesday, 7 June 2011
IMF verdict saves FTSE, screws UK
This is because more quantitative easing is suggested as the answer to any slowdown in UK growth. Heaven forbid the market or price of assets may fall to reflect the new situation. Instead money is to be printed to 'keep the economy going.' From the reaction of the Government, they seem to be in agreement with the IMF.
So Plan B seems to me to be an idea where we will trade-off current fiscal austerity with by paying for it with future monetary austerity. We may get a nice balanced budget but end up with £400 billion of Quantitative Easing.
The problem with this is how do you sell off all of these Government bonds, even over time. Issuance will have to be so high that demand will be full and yields will have to rise substantially to make it attractive. Oh, dear, that means high interest rates for a long time.
Let's hope that the recovery is long and strong or else what the reality maybe is sclerotic growth in the UK for a decade or more.
At least the FTSE, pumped with QE money, will be able to hold its own or break new highs...