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April 22, 2009


Rob C

Can always rely on you to prick the headline hype, Chris. Thank you.

Ref the comment on the BoE buying a large amount of the debt, how will that be accounted in the govt accounts? Will it just disappear of the books at a point in time?

kardinal birkutzki

The idea that the rules have changed and more debt is sustainable in globalized capital markets sets the alarm bells ringing for me; it sounds uncomfortably like the "new paradigm"-type rhetoric we have been hearing on all sides for the past 12 years.

Chris Dillow is without doubt the cleverest man he knows; however, anybody happening upon this blog post would be well advised to visit a serious economist's website, such as Willem Buiter, for a proper analysis of our current situation, as below:



"Nor does it mean it’s a good thing to lumber future generations with higher debt."

Not to mention unconstitutional.


"...you shouldn’t complain too much about globalization. If it weren’t for this, the government would be unable to borrow as much as it is..."

I'm sorry, but isn't that a bit like a hospital doctor saying to a patient "Don't complain about the fact that you've got cancer, or you'd never appreciate all the treatments we've got for you"


"This means that the government can raise the £220bn it plans to borrow in the gilt market merely by attracting 2.5 pence for every pound saved**. This is smaller than the share of the UK in the global economy."

Does that assume that no british individuals or companies also borrow, or is the $12.5trn a total amount people plan to invest in gilts specifically?

John Freeland

Wasn't it globalization of the financial markets that spawned the deregulation, the foolish risk-taking, the exotic investment "mystery meats," and the subsequent financial crisis?

john b

I think you misspelled "proper analysis" as "paranoid wibbling" above, Kardinal.

kardinal birkutzki

john b

If you are still continuing your temporary stay on the same planet as the rest of us, perhaps you would explain what you mean by describing this as "paranoid wibbling".

I've deliberately chosen an analyst who has not been at heart anti-New Labour so as to avoid accusations of "he would say that wouldn,t he". I could equally well have chosen Hamish Macrae from the Independent; are all such commentators paranoid?

I accept I was being rude about Chris Dillow (I do believe he can take it!) but I was merely trying to illustrate that this is not a time for trying to be over-clever and playing down the current situation; and that we should be seriously worried and be prepared to take firm action to secure the future.

You give the impression that you are not worried. I am sure we shall look back in a year or two and see if such a sanguine viewpoint was justified...


The global savings may total $12.5tn, but what are the global borrowing requirements for the same period? Including all governments looking to borrow, companies and private individuals? I suspect it may be a similarly massive sum. Given we are one of the worst placed economies it may not be as easy to find all this money as you think.

But you miss the most crucial point. Borrowing money is easy. Its the paying it back (including the interest) that's the hard part. Ask anyone with a maxed out credit card.

Sam Langfield

This is the best article I've read all day. Thanks.


@ Rob C - QE will show up in the BoE's balance sheet. On the asset side will appear the gilts it buys. On the liability side, the deposits that financial insitutions hold with the Bank as a result of selling the gilts.
@ Kardinal - please distinguish between an explanation for what's happening now, and a forecast. In pointing to global savings, I'm merely trying to explain why gilt yields (and government bond yields generally) are low in the face of so much red ink. I'm pretty confident gilt yields will rise over the medium-term.
@ John - in aggregate, companies and households are net lenders now. Yes,JimH, other governments will be tapping the $12.5 trillion. But if they can borrow easily, gilt yields should be held down to at least some degree, given the substitutability of global bonds.
@ John F - yes, globalization did contribute to the crisis, in the sense that high demand for safe assets led banks to create "AAA" rated CDOs. But just because someone throws you a rope does not mean you have to hang yourself.

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