The Premiership ofLiz Truss. Sept 2022-Oct 2022. New PM time!

[Nic Robinson]

I wonder how a VONC might go if Johnson were elected. Are there the required 37 PCP members with the tiny amount of integrity for force a GE under those circumstances, I wonder? I'm not holding my breath, that's for sure.

 

[droodzilla]

But having debt involves making interest payments. And a budget deficit means the debt growing and year on interest commitments increasing. How is that not a problem for future generations?

 

[Bob McC]

I wonder how a VONC might go if Johnson were elected. Are there the required 37 PCP members with the tiny amount of integrity for force a GE under those circumstances, I wonder? I'm not holding my breath, that's for sure.

Aren’t they technically protected from a VONC for 12 months?

 

[gustavm]

Have there been any UK generations that lived in times when gov. debt was not being repaid? Is government debt repayment a problem for you, right now?
I don't really understand all this stuff, but it seems to me that the "problem" of "government debt being paid by future generations" is only a problem because it is used as an excuse to slash public spending now. That really does create problems and misery for millions of people, right now.

I find it very hard to believe that any government or politician gives a flying fig about the poor, hapless "future generations" of my family. They only think as far ahead as the next G.E. Long-term, generational strategy is of absolutely no interest to them. The current crop of Torys would be perfectly relaxed to see millions of us standing in the street, eating food being shovelled off the back of a Red Cross truck.

Firstly I am happy to agree many of the current Tories like Rees-Mogg, Johnson etc are self-serving and don't give a sh1t about the plight of most people. But just concerned that some serious over-simplifications in some of the arguments here.

I don't believe debt is manipulated up solely to give an excuse for austerity. And it seems obvious to me that debt, especially steadily increasing debt IS a major concern for the future. Borrowing (via bonds) does have to be paid back with interest. You cannot keep kicking this down the road any more than you can with a repayments-only mortgage deal from the Bradford & Bingley. That not a political statement, it's a fact.

Of course if the borrowing means growth then that is another matter, as the deficit then starts to reduce. The reason for the calamitous response to Truss's budget was that there was no credible plan for the growth she was insisting would happen. (And also a shocked response that the UK could have fallen to such woeful stability and competence)

 

[NeilR]

The Johnson camp apparently tried to get Mordaunt to drop out and get behind Johnson, which she declined. So Johnson does not have enough backers to get over the line?

 

[Joe Hutch]

Aren’t they technically protected from a VONC for 12 months?

AFAIK, the 12 month rule applies only to votes of no confidence in the Tory Party leader, and would not be relevant if Labour put down a vote of no confidence in the Government.

 

[Nic Robinson]

AFAIK, the 12 month rule applies only to votes of no confidence in the Tory Party leader, and would not be relevant if Labour put down a vote of no confidence in the Government.

Was just about to say that. I meant a parliamentary one tabled by the opposition.

 

[ks.234]

Borrowing (via bonds) does have to be paid back with interest.

Yes, but it is paid back by government through it’s monopoly role as currency issuer, it is not paid back by the taxpayer.

 

[gustavm]

Interesting graph (had seen of course, but couldn't remember exact numbers). The increase after WW1 and WW2 war years is, the economic effects causing considerable distress (WW2 rationing didn't end until 1953). In recent times interest rates have been historically low, but that could all be about to change, which would have a dramatic effect on how that looks moving forward. (Not sure what proportion of our loans are fixed rate or varioble, and what currency they need to be paid back in - do you know?)

 

[Bob McC]

AFAIK, the 12 month rule applies only to votes of no confidence in the Tory Party leader, and would not be relevant if Labour put down a vote of no confidence in the Government.

Tories would close ranks round the leader under such circumstances.

 

[matthewr]

And it seems obvious to me that debt, especially steadily increasing debt IS a major concern for the future. Borrowing (via bonds) does have to be paid back with interest. You cannot keep kicking this down the road any more than you can with a repayments-only mortgage deal from the Bradford & Bingley. That not a political statement, it's a fact.

It's incorrect to think about it this way. Instead you should think about it as a set of interlinked equilibria and constraints for debt, taxes, inflation, exchange rate and interest rates and how best to utilise these using the (very blunt) tools available. Within that you should also make political choices by considering the impact on the level of unemployment, public services and taxation.

 

[Joe Hutch]

I expect they would, unless they thought that it would be best to end the torture sooner rather than later. I don’t suppose more than a couple would do so because they thought it would be in the best interests of the country.

 

[matthewr]

(Not sure what proportion of our loans are fixed rate or varioble, and what currency they need to be paid back in - do you know?)

Mostly fixed rate, about 25% are index linked and are owned mostly by institutional investors (i.e. pensions). Historically there were a small amount of variable rate gilts although these have not been issued for years now. All denominated in £ because the point is to fix the risk long term so adding in FX (over which we have even less control) would not make sense.

It's also worth bearing in mind that a huge percentage of this money is money we owe ourselves via said institutional investors.

 

[gustavm]

Yes, but it is paid back by government through it’s monopoly role as currency issuer, it is not paid back by the taxpayer.

Mostly fixed rate, about 25% are index linked and are owned mostly by institutional investors (i.e. pensions). Historically there were a small amount of variable rate gilts although these have not been issued for years now. All denominated in £ because the point is to fix the risk long term so adding in FX (over which we have even less control) would not make sense.

It's also worth bearing in mind that a huge percentage of this money is money we owe ourselves via said institutional investors.

Thanks for both of your considered answers...I totally acknowledge you know more about this than I do. But there must surely be a penalty for incurring national debt? (I agree it may be justified for various reasons, but objectively of itself, it is not a good thing?)

Otherwise - what's the problem (or rather, why the reaction) to Truss's budget?

 

[gustavm]

Mostly fixed rate, about 25% are index linked and are owned mostly by institutional investors (i.e. pensions). Historically there were a small amount of variable rate gilts although these have not been issued for years now. All denominated in £ because the point is to fix the risk long term so adding in FX (over which we have even less control) would not make sense.

It's also worth bearing in mind that a huge percentage of this money is money we owe ourselves via said institutional investors.

Also...I assume there is a payback date associated with each loan? So if you wish to extend you need to re-borrow at whatever the interest rate is then?

 

[ks.234]

Thanks for both of your considered answers...I totally acknowledge you know more about this than I do. But there must surely be a penalty for incurring national debt? (I agree it may be justified for various reasons, but objectively of itself, it is not a good thing?)

Otherwise - what's the problem (or rather, why the reaction) to Truss's budget?

If you are interested, I recommend chapters 5, 6, and 7 of…
https://www.taxresearch.org.uk/Blog.../Money-for-nothing-and-my-Tweets-for-free.pdf

 

[Tony L]

Cold War Steve at the Whacky Races (Twitter).

 

[matthewr]

Also...I assume there is a payback date associated with each loan? So if you wish to extend you need to re-borrow at whatever the interest rate is then?

Bonds are sold in different terms -- 2yr, 5yr, 10yr, 30yr -- with shorter terms coming with a higher rate of interest. When you hear about people talking about the yield curve they mean the shape of the curve you get by plot this interest rate over time from now to 30 years.

When the bonds expire the government borrows more by selling additional bonds at the regular auctions they hold and the price investors pay at these auctions sets the interest rate the government will pay. So at any point in time the government has a mixture of bonds of different terms and at different interest rates.

Also note that currently about 1/3rd of all these bonds are owned by the Bank of England as a result of Q/E, so in some sense we are borrowing, lending and paying interest to ourselves. Which again points to why you shouldn't think about government debt as being like credit card debt or that 50 quid you owe Big Mick from the Nags Head

(Somewhat incidentally bond traders don't generally speaking trade the actual bond but instead trade the shape of this curve by being long or short at various points through time usually via some form of derivative. Which is partly why it's somewhat confounding to hear people talk about how band traders move the curve when in fact most of their trading is about doing things in such a way that they are insulated from changes in the absolute price and are really trading the slope of the curve which is effectively the change over time)

 

[Sonority]

Are we to assume that if Baker is supporting Sunak the rest of the ERG mob will too, I wonder? If so it does indeed look like game over for Johnson.

In a way I'd be sorry, as I'm pretty sure that Johnson being re-elected would be the most disastrous possible outcome for the Tories.

R.Mogg backing BJ, and making very loud noises, so not all of the erg would be supporting Sunak. If he wins, they will do their utmost to bring him down I would imagine.

 

[MikeMA]

R.Mogg backing BJ, and making very loud noises, so not all of the erg would be supporting Sunak. If he wins, they will do their utmost to bring him down I would imagine.

Possibly, but I believe there are only around 20 members of the ERG