Things That Make You Go Hmmm… Such As A “Fiscally Credible” UK And Its Upcoming 100 Year Gilts
From Grant Williams’ latest Things That Make You Go Hmmm…
The popularity of Liability Matching amongst UK pension funds has all but guaranteed a disastrous outcome for a generation of ‘savers’ as rates have been held artificially low in a highly inflationary environment but perhaps the biggest ‘tell’ that the status quo cannot possibly go on for much longer came last week when George Osborne tabled an idea not used since the aftermath of WWI – 100-year gilts:
(UK Daily Telegraph): Britain is to offer 100-year gilts, meaning current Government borrowing will not be repaid until the next century, …
The Chancellor hopes that the 100-year gilts will help to “lock in” the benefits of Britain’s international “safe haven” status. The interest rates paid by the Government to borrow money have recently fallen to a record low and it is hoped the new gilts will mean “our great-grandchildren” can benefit from the low rates.
Currently, the average duration of the Government’s £1 trillion debt is around 14 years – with maturities ranging from months to a 50-year bond issued in 2005. Longer-dated debt is widely thought to offer a country more stability.
A Treasury source said tonight: “This is about locking in for the future the tangible benefits of the safe haven status we have today. The prize is lower debt interest repayments for decades to come.
“It is a chance for our great-grandchildren to pay less than they otherwise would have done because of the government’s fiscal credibility.”
Firstly, Britain’s ‘safe-haven status’ is a fallacy. It is no more safe than many of the other major economies who are choking on debts that cannot be paid off. The only reason it HAS that status currently is because of the very Achilles Heel that will ultimately prove to be its demise – the ability to print its own currency. By NOT being a part of the euro experiment, Britain has kept control of its fate and has been able to print its way out of trouble – so far – while its neighbours to the east have all been lashed to the deck of the same sinking boat, but the day is coming when Britain’s profligacy will become important again. As I keep saying; none of this matters to anyone until it matters to everyone.