The UK has at least a chance to mitigate that same damage a few months earlier. Failure to comply with this rule determines the financial fate. While I agree with optimists that UK sovereign debt is manageable and that premature budget cuts would be self-defeating folly (the debt ratio would rise faster if there were an output gap), it would be unwise to completely ignore bond vigilantes.

The Office of Fiscal Responsibility estimates that the debt ratio will reach 105% of GDP this year, up from 85% before Covid. There is no particular line in the sand. The global debt markets are a beauty contest between bad, worse and terrible.

The UK is not that great. It has the longest debt maturity among the G7 states as a cushion, and residual advantages as a holder of reserve currency. In other words: you don’t have to outrun the lion; you must outrun the other injured zebra. But you have to run.

You should also watch out for the elephant in the overall tub. The surge in yields on US Treasuries this year is causing tremors in global debt markets and has become baffling. UK 10-year borrowing costs have quadrupled since early January to 0.76%.

It is one thing when nominal returns go up; It is quite another when real returns become imbalanced. This means that the bond markets value more than the risk of inflation. They are starting to choke on the volume of debt issuance. That is the dark side of Joe Biden’s war economy plans: a near-instant, turbo-charged fiscal stimulus worth 13% of GDP, if you include the $ 900 billion Christmas package.

The surge in gold plating yields in part reflects vaccine optimism and simply brings us back to pre-pandemic levels. It is not yet unhealthy. But it could become so over the next year if the US Federal Reserve were to put the brakes on to avoid inflationary overheating. We might then find that global fund managers demand a higher premium to cover our incontinent deficits and to refinance our maturing debts.

The biggest problem with a foreclosure that has lost its purpose – to the point of becoming inconsistent – is that people will gradually ignore it and eventually challenge it. We will then have a rule of law crisis. No government should ever find itself in this predicament.

We hear more and more of the argument that Britain must remain confined because resistance fighters refuse to be vaccinated and should not be left protected. Such twisted reasoning cannot get the consent of this country. Those who advance this justification for the indefinite suspension of civil liberties and economic activity must lie in a dark room and pull themselves together.

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Source: www.telegraph.co.uk
This notice was published: 2021-02-24 19:00:00