4.25.2009

If no buyers are found for government bonds, debt interests could bankrupt the UK

http://business.timesonline.co.uk/tol/business/economics/article6164694.ece
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As John Wraith, the head of sterling rates product development at RBC Capital, says: “If investors get worried, and start to think this is the norm, they may sell the market or demand much higher yields. At the moment, interest payments on the national debt are 3 per cent of GDP, but you could easily see it get to 6 per cent. Six per cent of £1.2 trillion is more than £70 billion — and that’s just the interest bill.

“That is unaffordable. If you get to that, that is IMF territory — it means that you, as an economy, have gone bankrupt and can no longer afford to run your country’s finances. That’s a scenario, not a forecast, but it’s a perfectly feasible one.”

For the time being, most international investors see the current crisis as still being global, rather than Britain’s fault. But the Government — or a Conservative successor — will need to make tough decisions in coming years to prove that it has brought the fiscal situation under control.

If not, it is perfectly possible that the IMF will do it for them, relegating Britain to the stature of a Latin American banana republic in the process.

Read all of it, here...

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