Comments on: No more boom and bust, no more bubbles?

By: Rare Breed

Rare Breed — Mon, 05 Jan 2009 11:09:47 +0000

There needs to be a massive cut in public spending to protect the tax payer from the worst of this thing.

All the costs of the bailout should be matched with an exactly equal reduction in Govt. spending. Preferably a greater reduction.

I thought we had proved Keynes wrong???? Since when have the facts changed?

By: mart

mart — Mon, 05 Jan 2009 01:06:17 +0000

Dear John, Presumably bond prices would fall back if investors chose to sell larger than normal quantities of them for cash.

Why would anyone do that as long as cash earns interest at the low rates that are offered these days?

reply: The seller will be the government, raising new money on a huge scale!

By: Adam Collyer

Adam Collyer — Sun, 04 Jan 2009 22:37:46 +0000

“People are worried by any private sector risk these days, so they conclude it makes sense to lend to the government”

So if the government were not borrowing, they would be lending to the private sector instead? So the government borrows, then the government lends to banks, car manufacturers – in fact whoever it deems worthy of State loans.

I’m really not sure whether the government are just stupid, or whether this is all actually a scam to gain control of the “means of distribution and exchange” without ever mentioning “Socialism”.

By: APL

APL — Sun, 04 Jan 2009 19:59:58 +0000

JR: “Yet I can’t avoid a nagging feeling that when we come to look back on this period of our troubled financial history it will look as if there were a bond bubble in the midst of all the grief in other asset markets.”

Imagine if the bubble in guilts burst, not a little leak, but a huge overinflated rupture of its skin. What happens to UK government financing?

Or, imagine if the bubble (by some extraordinary miracle) doesn’t burst, but carries on growing. How long before the interest on the debt starts to equal revenue from tax?

It seems to me, in the short term we could have a crash, but in the long term we will have a crash anyway.

By: Robert

Robert — Sun, 04 Jan 2009 19:33:04 +0000

Yes you mean inflation adjusted return. Personally. I would not buy Gilts though, I agree index linked may be tempting to some. Bottom line this government is the challenging for the title of the most incompetant government of the last 30 years, though I have to admit that Heath’s sorry excuse of government would take third place!

By: mikestallard

mikestallard — Sun, 04 Jan 2009 17:21:11 +0000

Let me see now.
I am reading Nial Ferguson at the moment and he attributes the first bonds to the Italians. So aren’t bonds only as secure as the government that issues them? That was the case in Venice, I understand. When it crashed: so did they. (Russia 1917? Confederate States of America?)
At the moment, the government is running at a most serious loss as taxation doesn’t meet the vast, uncontrolled, expenditure. And that is not going to change, because of the Labour con that “spending cuts” must mean cuts in “front line services.”
Doesn’t confidence in bonds affect things like the pound too?
Isn’t this getting a little bit too serious for comfort?

(PS I liked the way the Telegraph today quoted your blog at length as an expert conservative opinion. That really was encouraging.)

By: StevenL

StevenL — Sun, 04 Jan 2009 16:22:17 +0000

You forgot to mention the ‘luxury’ ‘penthouse’ shoebox flat bubble. I was ridiculed for well over a year trying to warn people about that one.

By: Mark Wadsworth

Mark Wadsworth — Sun, 04 Jan 2009 10:04:49 +0000

Sure, but you can lend money to the government without buying gilts (i.e. via NS&I) which means you have the security without the risk that your bonds will fall in value.

As far as gilts goes, provided you don’t pay more than par value and you are genuinely intending to hold to redemption, you can’t really lose money on those either.

As to the property price bubble, that started in 2000 at the latest. I am amazed it lasted abother seven years before it finally popped.

Reply: Yes, all true. I did mention you can hold to redemption. The issue is what kind of after inflation return you will get.