Wednesday 14 March 2012

100 year Gilts - A super con, let's do it.

A British scene from 2112
"In the long-term we are all dead"

John Maynard Keynes

A classic quote I am sure you will agree. The news today that the Government are considering 100 year bonds is very interesting; it says a lot about the UK 'safe-haven' status that we could even think of getting away with it.

But maybe we can, when the option is to put money into Spain, Italy or non-democratic emerging markets with flaky attitudes to the rule of law (that Mr Putin, makes the trains run on time etc) maybe this is attractive.

Plus of course the main fuel for all of this malarkey is oil. Wealth is hugely manipulated by oil in the modern economy, which mainly sits in unproductive desert spots. it's owners have no idea what to do with their accrued wealth and desperately don't want to lose it - so they want very safe investments.

So roll-up, roll-up here is a super safe. super long-date UK gilt that will pay you a nice income and your children too and possibly their children as well.

For the UK this would mean an even longet-term debt profile that we already have which would make the Country a safer long term bet - a nice self-reinforcing circle of joy.

No doubt there will be critics today saying 'ooh isn't that a long time' and 'oh, think of the children' and so on. That is a terrible argument that shows understanding only the most basic attempts at political populism whilst demonstrating no grasp of the reality of the situation. Reducing our long-term borrowing costs is good for the Country - essential in fact as our crazy Governments spend a good 7% more than we accrue in taxes at the moment.

Finally of course, think of the investors in these gilts. They are buying into the stability of a Country that has bought 50% of its own Government Bonds with printed money in the last 3 years, has an ageing population problem and is often run by socialist Governments who typically take it to near-bankruptcy before getting kicked out.

So if we can find people who see this as a perfect super-long investment case we should sign up as many as we can as soon as possible...


Anonymous said...

This is madness, utter folly.

I can see the logic in pure theoretical terms but the practical reality is that politicians will use low financing costs as an excuse to borrow more. It's like a 0% APR on balance transfers for credit cards.

How about Osborne cuts spending and stops increasing the debt?

Old BE said...

I think it's clever posturing. Of course what *could* have been done is the Debt Management Office starts to issue longer and longer dated gilts to see what the take-up is and stretch out the maturities slowly. What actually happened was it was a nice little press release shortly before the budget to show that the Coalition has massively detoxified the British government's debt reputation.

One effect may be that people rush to buy the shorter bonds, lowering the cost of short-term borrowing even further than it is now.

It also sparks the debate as to whether we want such a chunky national debt in the longer term.

Clever politics Osborne.

Oh, and the economic figures are OK too this morning.

Antisthenes said...

It is academic really as more socialist governments and social democracy will in the in the end cause inflation and or default. Debt will be wiped out along with the nations economy. If I was an investor I would not touch gilts/bonds of most of Europe's countries as bit by bit each one's economy will crash.

Budgie said...

I agree with Anon 9:29am. We do seem to be in the grip of a madness: that government spending = good; wasting time dreaming up more ways to tax people; ignoring the necessity to reduce the size of government; by-passing the need for state services to be as productive as the public (ie non-state) sector.

And as Antisthenes implies, anyone who thinks that statists are a safe haven for your money is barking.

Sebastian Weetabix said...

For a moment I thought to myself "no-one will sign up for this, nobody is that stupid".

But then I remembered:(paraphrasing George Carlin) have you noticed the average person is as thick as shit? Half the people are even thicker than that.

Old BE said...

CU you have excellent ranters on here. Note to the window-lickers: public-sector employment is down HUGELY since the election. Still a long way to go, but the direction is sound.

CityUnslicker said...

Agree re Government wasting the money, but you can't look a gift horse in the mouth. If there really is a market for this at the current rates then it is madness not to do it.

Those above saying it is like a credit card; we are already borrowing this money at higher rates, you can't turn the tap off.

Budgie said...

I make discerning comments
You exaggerate
All the others rant ....

Bill Quango MP said...

Remember, 82.4% of i arguments on the Internet are over made up statistics.

Electro-Kevin said...

BQ - Brilliant !

BE - The government may be making public sector cuts in the right direction but it's the wrong people. Not the execs. And if they do go it's with a golden bullet.

Electro-Kevin said...

...I'd rather have his job than mine ...

... when I'm lickin' windows !

RedRut said...

What exactly is the upside for an investor for these bonds. Analysts can't forecast the economy for 5 years, let alone 100 years.

May as well get your darts and your FT out, at least the investment is more fun!