It’s funny to hear politicians solemnly talk about “debt-financing”, as if the cash comes down on a moonbeam from the lending gods. In truth, some poor souls have to buy the gilts the Treasury are flogging – and with what? Governments may well find it as hard as the rest of us to find creditors in this global downturn. Especially seeing as the Treasury is flogging a tanking pound, now tainted with the risk of Britain losing its AAA rating (unlikely, but so was the nationalisation of the banks). Consider the sheer scale of cash Brown wants from the City. In 2007/08 net gilt issuance was £29bn – bad enough, but that’s likely to more than treble to £100bn this year.
So who will buy? So far, the answer has been foreigners – who provided £3 in every £4 borrowed by the Treasury over the last three years according to Citi. This is mainly gullible sovereign wealth funds, Arabs looking for a home for all those juicy petrodollars. But they got badly burned buying into Wall St in Jan, oil prices are falling – and who would stock up on the plunging pound? In short, the liquidity which bankrolled the British government’s misbehaviour in the last few years may soon dry up. This downturn may prove more expensive than we realise even now.
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