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November 22, 2012


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Luis Enrique

I agree that low yields have more to do with the parlous state of everywhere else than admiration for UK fiscal discipline.

What could cause our bond yields to jump? I don't imagine we'd ever seriously be perceived as being at risk of choosing to default, but we might be regarded at risk of inflating our way out of trouble, in which case expected real returns on UK bonds could plummet causing nominal yields to rise (is that right?). I presume if that happens the rating agencies would slam the door after the horse has bolted.

What could we do to put ourselves in the set of basket case countries, rather than in the set of least-bad countries, which we currently reside in? The only thing I can think of is if we embarked on a really large "we are going to borrow and spend our way out of the mess" strategy, and it didn't work.

So I suppose the only thing that can be said of the Tory position is that at least we haven't done that. That is to say, there is at least one possible "bad" outcome that they have avoided, thanks to fiscal rectitude.

Of course the counter argument (which I think I agree with) is that if we did stop cutting and (horrors) even started splashing some money around, the multiplier is sufficiently high that we wouldn't actually need to borrow more. i.e. it would work.


He didn't ask about gilt yields, he asked about ratings.

gastro george

A rating is almost irrelevant for a monetarily sovereign country. See Japan and the US.


"What could we do to put ourselves in the set of basket case countries, rather than in the set of least-bad countries, which we currently reside in? "

There's also 'declare you're going to cut the deficit, but in doing so also kill growth resulting find yourself with spiralling social costs, flat demand, less margin to cut/stimulate as time goes on, an insurgent population, increasingly nervous business being disinclined to inest as well as a big deficit'. I'd suggest we're well on the way to that one.

Luis Enrique

Tom - yes! after hitting 'post' I regretted not having added something like that. If they've avoided once possible bad outcome, they've put us in another one.


@ marc - if anyone's daft enough to care about ratings other than because of their impact on yields, then they are guilty of an even worse form of the fetishism I deplore.


British politics seems to repeat the same errors as in the past on a predictable basis. Our obsession with confidence and impressing bankers is Philip Snowden of 1930- 31. As if the body politic was a very senile person with hard arteries unable to learn and repeating old habits no longer appropriate. Can we have a mutiny some where to derail the policy as in 1931?

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