The UK government wants to borrow ₤120 billion during fiscal year 2009-10. That means the government needs to flog ₤10 billion worth of new government bonds every single month. It is a tall order. As this borrowing binge gathers momentum, it will be hard to keep interest rates low on government bonds.
However, the deficit is not the only financial problem facing the government. Brown and Darling offered virtually unlimited backing to the largely insolvent UK banking behemoths. Public sector debt levels are now rising dramatically. In the short run, this has prevented a full blown banking crisis. In the long run, it has put the financial viability of the government in doubt.
The banking crisis may be over; a new crisis is about to hit us; a fiscal crisis, where the government has difficulty financing its deficit and covering the growing losses of the now nationalized banking sector.
Saturday, February 28, 2009
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