Antigravity

I’ve spent the last few days brewing, making sales, struggling with paperwork, and composing a letter to the council that is so vitriolic that on reflection I’ve decided not to send it. So I’d missed these three stories that taken together are deeply disturbing.

A bit of context. Public finances are in a dreadful mess, with at least two trillion pounds of debt (Feb 2009 according to the OECD) and 200 billion pounds ushered into existence by quantitative easing. The debt is bought by international financial markets who give money to the government in return for gilts. They demand a certain level of interest to do this and that interest level is reflected in the interest rate charged on mortgages and other day to day credit transactions.

If the rate of interest goes up, the economy will tank and with a mere 0.1% growth in the last quarter (if you can believe that) it will not take much.

Why would those wicked financiers demand more interest ? They’ll do it if they think that Britain’s ability to pay back the gilts has become riskier, for example if Britain’s credit rating was downgraded. It happened to Greece late last year.

Now, as a matter of fact, despite the sheer cack handedness of the way the economy has been handled over the last few years, the ‘market event’ has not happened. Britain’s economy has run off the cliff but like Wile E. Coyote we are not falling because we haven’t noticed yet. You’ll note that I’ve described the carnage of the last few years as ‘not falling’; imagine what ‘falling’ might be like.

Opinions vary on why, but a very plausible theory is that the markets are waiting for a change in government when they believe George Osbourne will become Chancellor. The theory goes that he will immediately make drastic cuts in public spending to start setting the situation to rights. He is after all, a Tory. In other words, George is under the microscope.

On Thursday, George published this piece of nonsense full of sound and fury and the latest psycho-economic theories but studiously ignoring the elephant in the room.

At round about the same time the world’s most influential bond manager (Bill Grosse) wrote:

The UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerine.

…and finally today we learned that the Standard and Poor’s, the credit rating agency had downgraded Britain’s banks. This is frequently a precursor to downgrading an entire country’s credit rating.

It’s beginning to look as if at the end of Davos, the markets have reached a judgment about George, and by extension about the likely future of the UK. Just like Wile E. Coyote, we may well be about to learn what gravity really means.

Hat tips to The Devil’s Kitchen, Burning our Money, IanPJ on Politics.