£525 billion of new gilts this year is what the economy needs – and no hysteria is required

Posted on July 17 2020

As Yahoo News (amongst others) noted yesterday:

The UK government is on course to sell more than half a trillion pounds of debt this year, more than double the previous record at the height of the financial crisis, as the response to the coronavirus emergency drives borrowing to unprecedented levels.

The Debt Management Office said on Thursday it planned to raise £385bn from bond sales in the first eight months of the current fiscal year. The update to the government's borrowing plans, covering the period from April to November, follows the latest package of measures to support the economy through the crisis announced by Rishi Sunak, the chancellor, last week.

But before we get too excited about this, as the Debt Management Office shows, about £100 billion of this is simple replacement for maturing bonds:

And £300 billion is covered by quantitative easing, so far announced for this year.

Whilst the savings rate has shot up because of the .coronavirus crisis.

In other words, the government needs to issue this many bonds to soak up demand.

So might I suggest that the hysteria about this record sum is a little misplaced?

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6 Responses

  1. CLIVE PARRY says:
    July 17 2020 at 9:04 am

    …. and if anyone is in any doubt, just look at the price!! 50 year bonds yield 0.60%.
    Strange how those that worship markets are the ones most blind to seeing what the bond market is saying.

  2. prentii says:
    July 17 2020 at 10:22 am

    hopefully you will get another outing on Jeremy Vine or similar – if you do, try to mention things like ‘economically illiterate’ – basically become deliberately provocative whenever you get media exposure. Why? Because you will get more invites – and – over time people will begin to see the logic of your arguments.

  3. Pilgrim Slight Return says:
    July 17 2020 at 1:09 pm

    Now it seems that Boris has got bored with Covid and is handing lock down responsibilities to local authorities and employers in time for when the shit really hits the fan in the winter.

    What a cynical bunch of bastards the Tories are.

    This virus has cost my LA £33 million. There has been some great work done, but this hand off – and I expect like the NHS, it will be underfunded – is simply a dereliction of duty under the notion that local is best.

    It’s risk shifting – that’s all it is.

    Utterly disgraceful.

  4. Nigel Manning says:
    July 17 2020 at 5:37 pm

    Quite clear the government only needs to issue £225m of bonds to meet demand – it has to create money to purchase the other £300m of bonds being issued.