Frank Field MP
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Where have all the money lenders gone?

27
Apr
The key issue that has bugged me since the Northern Rock bust up has been whether there have been enough money lenders out there, with enough money, to buy up the shed-loads of debt the Government is going to shovel out into the market. At long last, thankfully, in the last couple of days, one or two members of the commentariat have begun to join the discussion.

During this year the Government will be looking for £175bn of new debt on to which it will reschedule some past debt, giving a total £220bn. Let's remain in optimistic mood and assume the Government has, for once, got its calculations right.

We are not, however, the only country in search of lenders. Every other G8 country is in the same boat.

That is why it is so fatuous of some commentators to assure us that everything will be alright on the day because our debts now are nothing like the size they were during the Second World War. Surprisingly, Sam Brittan of the FT is leading this particular charge.

The two positions could not be more different, except that at both times our poor old country was in hoc. During the war years America, and those countries that lent to us, were in substantial surpluses. Moreover none of them were trying to borrow while we attempted to balance our budget.

Ambrose Evans-Pritchard, of the Sunday Telegraph, headed his column this week with the caption: ‘The capital well is running dry and some economies will wither'.

He cites "Commerzbank said every European bond auction is turning into an "event risk". Britain too finds itself some way down the AAA pecking order as it tries to sell £220bn of Gilts this year to irascible investors, astonished by 5pc deficits into the middle of the next decade".

To drive his point home, Evans-Pritchard cites the US hedge fund Haymen Advisors which is betting on the largest wave of state bankruptcies and restructurings since 1934. The worse profiles, according to Haymen Advisors are almost all in Europe ‘the epicentre of leverage and denial'. American banks have written down half their assets compared with only 17% of their European equivalents.

Evans-Pritchard also countered another foolish piece of whistling in the dark. The tune being bellowed here is that Western Governments have been successful in the past in borrowing from the petro-powers as well as China, Russia and other emerging nations, so why shouldn't they be as successful now.

This source of capital has been turned off. China is using a huge chunk of its surplus to reflate its own economy - in the hope of preventing widespread disorder and perhaps revolution. The crash in the oil price has seen Russia and Venezuela drastically revising their surpluses and, as if to put the boot in, these countries have become net sellers of US and European bonds.

There have been significant national bankruptcies before and there is nothing special which will prevent a similar scenario today. We kid ourselves that we are now much more knowledgeable in how to manage crises.

We may be, but we do not have time left to debate this point. What we do know is that the international institutions which we set up to create world financial order are themselves struggling to come to terms with the new world in which they, and we, now find ourselves.

All this makes it near criminal that the Government and the official opposition are bent on not spelling out now the tax changes and public expenditure cuts they envisage to bring the public accounts into balance in the short to the medium term.

Their failure to do so leaves Britain dangerously exposed in the world ranking of safe havens for other people's money. It now costs significantly more to insure British government debt than it does the debt issued by Cadbury's. The loss of our triple-A rating beckons.

That is why it is urgent that the political class in Britain gets real. We still have time - hopefully -to debate calmly tax and expenditure changes. Above all we still have time to make those changes radical.

As soon as the Government finds it nigh impossible to raise the next necessary tranche of debt there will be a wholesale exit from Sterling. The Government will then be fighting not simply for its own life, but for that of the whole country. Politicians must now act to head off that looming possibility.
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Comments

Showing comments 1 to 2 of 2

comment
Please, please don't spread the blame. This is not the opposition's prime responsibility, it's the present government's sole responsibility as the Treasury has both the data and power to balance these books.The opposition has, at best, a potential to take over this responsibility, no more.But then again, accepting responsibility hasn't been an honourable trait of our present PM, has it? Far better to exacerbate the position by procrastination and leaving the real dirty work to others whom this government will no doubt blame for the resulting pain. Or, only take real action on public sector debt once the financial markets crucify our economy or after the fooled electorate offer another 5 years to mismanage our nation." All this makes it near criminal that the Government and the official opposition are bent on not spelling out now the tax changes and public expenditure cuts they envisage to bring the public accounts into balance in the short to the medium term".
Comment by Anonymous on 15 Jul 2011
comment
Yet more words of wisdom from you, Frank. Well done.
Comment by Anonymous on 15 Jul 2011


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