What Would Thatcher's Government Have Done About the Plunging £

And if the lenders don't get their loans back then they won't make further loans to us, if they have any sense...

James

probably... and then there is there is one born every minute.... and there is.... there's another mug coming down the street right now and then there is...who will they lend to

in reality it is a risk/return calculation.... most people will in fact pay back sufficient to make the process profitable....

there is far too much panic and hysteria being bandied about

but of course the clown wants that... the socialists want that... the media wants that....

so, that's what we have

regards

and brown the clown...

regards....

Will the UK government pay back sufficiently to make the process profitable? Can you trust them with a tuck shop?

James

anyone who doesn't ask at least 5 or 10% extra interest on uk debt is innumerate

obviously not

regards

On Tue, 09 Dec 2008 20:58:43 +0000 'James Hammerton' wrote this on uk.politics.misc:

A weak pound makes exports cheaper and probably improves volumes. It does nothing to improve productivity, and can actually work the other way. I can't say where the biggest effect is between higher import prices, higher inflation and slacking off on productivity

-vs- higher export volumes etc.

Higher inflation is paid for by you and me, whereas higher export sales benefit the sellers.

On balance, I favour a strong currency and point to Germany as an example of success for decades.

On Tue, 09 Dec 2008 21:05:27 +0000 'James Hammerton' wrote this on uk.politics.misc:

Carrots are soooooo boring...

I wish we could talk about bananas ...yummy yummy ;-)

On Tue, 9 Dec 2008 12:47:14 -0800 (PST) 'Mel Rowing' wrote this on uk.politics.misc:

Mel, I think you might want to refresh your understanding of CDS insurance and Britain's relative debt security. This article sets out my previous points:

"The collapse in Britain's credit rating has taken place over the past two and a half months, since the Government underwrote the banking system and decided to spend its way out of recession. Investing in UK government debt is now almost twice as risky as buying McDonald's corporate bonds, according to the market in credit default swaps (CDS), which provides insurance for the buyers of such debt."

The government debt of large economies such as the UK would normally be considered far more secure than corporate bonds. However, on 29 September, the cost of buying insurance against default on UK five-year government debt became more expensive than the equivalent cover for the US burger chain and has since overtaken Kellogg's and Coca-Cola, according to data from Bloomberg.

The cost of insuring British debt soared on that day, as the Government nationalised Bradford & Bingley, increasing fears that the state would have to bail out the banking system.

The cost of insuring for a year against default on £10m of five-year UK debt has jumped from less than £30,000 to £120,000, compared with the current price of £77,000 to protect against a similar McDonald's default.

The cost of insuring against default on the Government's bonds spiked again in mid-October after the Government announced its unprecedented bailout of the banking system, which has already seen Royal Bank of Scotland become part-nationalised.

The extraordinary movements in the CDS market also reflect market concerns about the highly leveraged British economy, which is sliding into a recession that the International Monetary Fund has predicted may be worse than the slowdown in the US.

The CDS market has proved controversial as the financial crisis has unfolded because it has raised alarm bells about the financial strength of companies, but at the same time it is opaque and illiquid and has become a means for speculators to bet against companies. Investors also use CDS to hedge against other risks such as share prices, meaning prices can reflect other factors than the underlying risk of the debt insured.

But analysts said the dramatic change in the risk rating of the UK's debt still represents a major swing in investor sentiment towards the British economy. The cost of insuring against German default on equivalent terms is below the UK at £51,000, with France costing £61,000. Britain is deemed to be safer than Italy, at £191,000, and Russia, whose CDSs cost £784,000.

Sean Corrigan, the chief investment strategist at Diapason Commodities Management in Switzerland, said: "For the UK to have this default rating is in some ways ludicrous but the market is using these instruments to express a view about the relative standing of certain countries. This has taken off as the domestic financial situation has got worse and the steps taken by the fiscal and monetary authorities have become more irresponsible."

The Bank of England has made an about-turn since September by slashing interest rates three times to 2 per cent, the lowest since 1951, with markets speculating that rates could hit zero as the authorities try to support the economy and ward off deflation. Last month the Chancellor announced that the Government would bring forward spending and cut short-term taxes in a bid to prevent a long, deep recession.

The cash market for debt paints a different picture, with the UK deemed a safer bet than McDonald's and other companies. Analysts said that should in theory attract investors to "arbitrage" the difference between the two markets by betting on the UK in the CDS market. "It looks daft, it is daft, but that is where the buyers and sellers are and the way business is getting done in the CDS market," one analyst said."

Ok I stand corrected!

It is news to me that there would be a CDS market in major international government bonds.

As I say, the UK government has never defaulted on a bond issue even in times of war. We are far far away from the situation we faced in

Nonetheless payments on bonds issued prior to the war continued unabated.

To get this into perspective it would appear from the figures in your article that the calculated risk associated with a UK government bond is rated at about 0.024% p.a. or 0.12% over the 5 year term for those who would wish to lay that risk off. Hardly a significant disincentive against holding UK government stock I would have thought.

On Wed, 10 Dec 2008 02:48:32 -0800 (PST) 'Mel Rowing' wrote this on uk.politics.misc:

Same here until maybe 1-2 months ago.

It's one aspect of the government borrowing process going on out of public view that pols never like to mention.

The issue appears to be that the perceived quality of British Govt debt has seriously deteriorated since September. That indicates lenders are losing confidence and possibly anticipate something like the IMF stepping in at some time to bail us out.

I think the important aspect is to compare the higher risk of British Govt debt -vs- other countries and some private corporations. That is a good measure of relative confidence.

Britain's is getting marked down as it did under Dennis Healey.

That 0.12% covers the possibility that the government defaults, and the insurance company is still around to pay up.

There is probably more chance of the insurance company going down, so that's why the cost of the CDS is so low.