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I believe that this could be very significant, if not immediately then certainly sooner rather than later.
How long before a UK guilts strike? is the question raised by a fellow blogger. The Capitalists@Work blog makes excellent reading and I would recommend it if you have an interest and a few minutes to spare.
This is what he has to say on the matter: -
Yesterday's failed auction caused rumblings in the City. Effectively, the City trading desks want to buy short-term guilts off the government and sell them back to the bank of England at a profit.
In this way, the taxpayer is transferring money to the Banks for re-capitalisation. Easy, risk free profit for the City Traders.
QE (Quantitative Easing) was not meant to do this, as longer-term buyers were supposed to be involved, but it is the law of unintended consequences. When the Government tried an issue of long-term debt though, there was a strike, whereas the short-term debt auction today, which has a nice guaranteed bonus on it from HMT, goes without a hitch.
The long-term is an issue though, QE is going to cause inflation and long-term bonds at under 5% return with no inflation guarantee does not look like a great investment, hence the lack of buyers. Do you think inflation will stay so low for the next 40 years?
If the Bank of England ends QE early, then we will see if there is a short-term strike too. To fob off yesterday as a blip is incorrect, it is still a big warning. Hence Mervyn King sounding off earlier this week.
The Government is going to have funding issues big time if it follows a route of spending more money without any cuts in other expenditure.
For me this sums up the problems well. Banks are quite willing to take as much guaranteed profit from the public purse, your pocket, as they can get away with but are not willing to take the risk themselves.
This makes the British National Party policy of nationalising all of the failing banks and passing their shares over to a Bank of National Reconstruction look fairly sane don’t you think?
