All eyes on John Healey: Government advised to slow down or to halt sale of bonds of public debt

 

UK Government advised to slow down or to halt sale of bonds of public debt

The latest reports indicate that economists have stated that to prevent an acceleration in terms of the growth of British public debt, selling less bonds of public debt or stopping sales altogether would be the safe thing to do.

This would leave the Chancellor of the Exchequer with two options: more taxes or budget cuts or both options at the same time.

This is a dangerous time for the British economy because as inflation rises, more resources will be needed. Every time inflation rises, salaries are devalued and the currency is naturally devalued. You can buy less and less with the monies that you have in your pocket or the monies that you are bound to receive. This can mean, once again, industrial action.

Whether the Chancellor of the Exchequer decides to slow down or to halt the sale of bonds of public debt, the fact remains that Britain needs money to pay for its budget. The news that the European Union could be about to implement legislation designated as Made in Europe to deal with Chinese increasing competition that could lead to the lost of more than 300,000 jobs across the European Union is not good news for Britain as this could restrict British investments in the European Union.

Things are not becoming any easier for branches of the public sector like the National Health Service that are asked to create redundancies to ease out the pressure on the budgets run by NHS Trusts. Local and regional authorities have been dealing with deficits in their public finances as asking for more financial support from the Treasury as a way not to raise local and regional taxes that could put families that are already under pressure due to rising taxes and rising inflation. The official rate of inflation that was 2.9% (0.9%) is now thought to be 3.1 per cent and could go as high as 4%. Why is this important? Because much of public debt is indexed - linked to inflation rates. So when inflation rates go up, public debt goes up.

Today, the Bank of England will have to decide if it keeps the present official interest rate. This can have a direct impact on how much the financial sector - especially the banking sector - can charge for loans and mortgages. Under pressure, asking prices for sale of properties are falling in an effort to find new buyers. As much of the British economy depends on the capacity of banks to lend and on the capacity of buyers to acquire loans and mortgages, there is financial uncertainty. Financial institutions borrow to lend to potential buyers. If at any point buyers cannot make payments, leading to defaults, then the full weight of having to pay back credits falls on the banks shoulders. Some years ago, the British government had to rescue the banking sector and used government reserves to that end. For the British government to be able to do the same, once again, there would be not enough reserves available.

The British government wants to invest more in Defense, but this means taking resources away from other areas of the public administration. With limited sources of income and facing the prospect of having to pay more to keep public services as they are, there is very little or no room to maneuver.

There is always the danger of increasing industrial unrest and rising unemployment that automatically increases pressure on the so called Welfare State that needs to support those who are unemployed. Already, about 60% of those aged between 18 and 25% have little chances of finding a job to pay the bills and a growing number depend on parental financial support.