In the short term nothing as it has already been priced in and expected (overdue), bond prices for the UK and France have crept up from about 1.9% to about 2.2% in the last few months, there has also been a slight rise in USA.
In the next few months probably not a lot as the risk return from investments in other savings are currently so poor from stagflation, that 2.2% on safe Gilts is as good as it gets right now. If or when the global economy starts to pick up then that is the time to worry as money will earn better returns elsewhere, so Gilt prices will drop and interest rates rise. If the rise is significant then this will start a crisis of funding the deficit, like there has been in Spain, Italy, Ireland, Portugal and Greece. The response will then probably be a significant amount of QE to fix the Gilt market and allow the Government to fund the deficit. The side effect of this will be a significant rise in inflation with the debasement of the pound, which will make the currency and Gilts even less attractive.... This is the start of a nasty positive feedback loop and a self fulfilling Sterling crisis and ever rising inflation until you have hyperinflation.
As the pound continues to weaken where oil, gas and soft commodities (staple foods) are priced in US Dollars, then the pound will continue to be sold along with Gilts and this will be the start of a Sterling crisis and the real nasty point will be when we run out of foreign currency and nobody will accept our debased Sterling. How do we then fund oil, gas and food? This is where you help by either allowing the Government to borrow against your private assets (you act a guarantor) or a more practical solution is just to confiscate your saving and assets (Mansion, Jewellery, Paintings tax that morphs into an assets tax anybody?). This is what effectively happened in 2000 in Argentina where the Government converted all US Dollar savings into New Argentinian Pesos at 1 to 1, where by the time the banks reopened the new Peso was worth next to nothing.
A bit of a conundrum at the moment is why GDP is flat lining or dropping, manufacturing and construction are shrinking, the service sector is growing slowly, but employment is up and unemployment is dropping. In a normal recession you would at this point in the economic cycle employment to be dropping and unemployment rising. Some of this is due to more part time jobs on lower wages and the rest is put down to lower productivity where employers are holding on to staff waiting for better times. But something is missing and I've had a think about this and I think is must be due to two things: We know North Sea oil production is decreasing and with the current price of oil the turnover per worker must be high but overall declining and we know high net worth people due to high taxes are leaving. The Inland Revenue have reported that those paying 50% tax on over on £150k has shrunk from 16,000 to 6000 so the tax take is smaller (Laffer curve effect). Now there is a continuing expansion of convenience store like Tesco express and other low value service industries, like caring for the elderly, so are the high value per per person jobs being replaced by those on the minimum wage? So we are getting higher employment but in industries where there is a smaller turnover per person?
If so, this would also help to part explain our deteriorating balance of payments, where we need to import more oil and gas, but also the high net worth people are also more likely to have been involved personally or be employing people that have been involved in the generation of income from abroad, through the export of goods and services. Now if this in financial services, it will be what are classed as invisible exports as it does not involve physical goods, but something that is vital never the less.
The more the politics of envy take root in this country and 'profit' is made a dirty word. The longer the rebalancing of the economy through public service cuts and tax cut is delayed the more we are going to be mired in the downward spiral of stagflation and falling wages. As the economy gets weaker and weaker, so the greater the danger of a real Sterling crisis through a collapse of Gilts and the value of Sterling or both.
I wish I could be positive, but none of the LibLabCons are up to the job of sorting out the economy. They have all taken the soft easy options and it is slowly but surely catching up with them. The brutal reality is that we need better politicians. Many people put the current crisis down to a banking and capitalism crisis. The banks have been allowed to behave unacceptable by the politicians and there is no capitalism crisis there have been remarkable few bankruptcies, with industry sitting on record saving waiting for signs of a growing economy, so they can start investing. What we have at the moment is a crisis of Government and politicians in most Western countries. Are UKIP the answer, who knows, but at least Nigel Farage has made a fortune in the city, has had a real job and understands finance, so I will give him the benefit of the doubt. The only person in the Conservative party, that understands the situation is ChrisGixer's MP John Redwood and I'm sure as Chancellor he would give us a fighting chance. The is nobody on the Limp Dems or Labour that I'm aware of that can get us out of this mess, in fact if they have their hands anywhere near the levers of power, I'm sure the current pending disaster will be made that much worse.
I wish I could be more positive, but the decline into a crisis is slowly and inevitably happening. On a personal and selfish note I hope I have sold my house, moved my funds elsewhere and I'm in the Ukraine, before this show motion train crash happens.
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Topic: I see that we have lost our tripple A credit score (Read 2530 times)