Jamz3k

As the Gov are borrowing money hand over fist and every other country seems to be in a similar situation who exactly are our Gov. getting the money from?

Trout

iTrader: (1)

Many sources - one of the key sources is us through the issue of Government bonds. Bought by pension funds and big play investors as a safe modest return investments. A lot of bonds are sold to foreign sovereign wealth funds such as China, Middle East, etc

Jamz3k

I see, so when does it get to the time when they wont lend a country anymore money?

scud8

iTrader: (1)

I thought it was almost exclusively from bonds (aka gilts). Obviously they've just borrowed £200 billion from themselves by the neat trick of getting the Bank of England to buy £200 billion of bonds with newly printed money (so called Quantitative Easing or QE). In theory BoE were supposed to be buying a spread of government and commercial bonds, but I believe the vast majority of what they bought were UK government bonds.

Now that QE has ended we are completely at the mercy of external investors still thinking that UK gilts are a good home for their money - ie. they will get a competitive return compared to other options (equities, foreign government bonds etc.). If they think there is a significant risk of inflation and sterling devaluing against other currencies then they will demand a higher rate of return.

I'm looking forward to seeing what happens when the first gilts auction fails. The next one is scheduled for Wednesday 24th when UK DMO will be attempting to sell £3 billion of 10 year bonds paying 3.75%. The last two auctions were over subscribed, but these were for smaller quantities of index-linked (ie. inflation proofed) bonds.

scud8

iTrader: (1)

There's never a particular point, but you can see which way the wind is blowing by looking at what gilts are changing hands for on the open market (which determines the yield) and comparing that to the rates the government are offering on upcoming gilt auctions.

If you are interested, DMO (the Debt Management Office - the department responsible for selling gilts) has a calendar of auctions on the web site - see UK Debt Management Office.

The yield on 10 year gilts traded on the open market is currently around 4.25%, so there is a chance next weeks auction of 3.75% 10 year gilts may fail. If you were an investor looking to buy 10 year gilts you would get a better return buying on the open market right now than buying directly from DMO. In practice DMO will may accept a lower bid price resulting in a higher yield - but it's not clear how low they will let the price drop before deciding not to sell all the offered bonds.

For example the last auction of 3.75% 10 year bonds (on 21 January) only achieved an average price of £97.30 (per £100 of bonds) giving a yield of just over 4% - but it was still over-subscribed at this price (the plan was to sell £3.25B, but they ended up selling just shy of £3.5B).

Trout

iTrader: (1)

That was about to happen to Greece.

It happened to us in the '70s and we had to turn to the International Monetary Fund - the daddy of all banks - to bail us out by propping up Government funding.

It is also possible that sovereign wealth funds can be tapped - but usually in return for some seriously discounted security.

r32

We are close to losing our triple A rating, which means we will start to have problems selling gilts.

kingofturds

iTrader: (1)

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corradoboy

I recall reading they currently spend nearly £1/2bn more a day than they recoup through taxation, so it can't be long before the bottomless pit runs dry Maybe then they will streamline the benefits system and restrict access to British nationals, and the same with the NHS, instead of the worlds waifs and strays walking in and robbing us blind Admitting the problem and stepping back from being a major world economic power, and even more-so stopping being the worlds armed response force and focussing on getting our house in order would be a better standpoint for election than piffling green issues

Leslie

I foresee very real problems with the cash supply in the not too distant future. They are hoping they can hold the election before it all starts to fall apart and taxation and inflation begin to rear their heads.

Les