How Long Before We See A Strike In UK Gilts?

Yesterday’s (Wednesday) failed auction caused rumblings in the City. Effectively, the City trading desks want to buy short-term gilts off the government and sell them back to the Bank of England at a profit. In this way, the taxpayer is transferring money to the Banks for re-capitalisation. Easy, risk-free profit for the City Traders.

QE (Quantitative Easing) was not meant to do this, as longer-term buyers were supposed to be involved, but it is the law of unintended consequences. When the Government tried an issue of long-term debt though, there was a strike, whereas the short-term debt auction today, which has a nice guaranteed bonus on it from HMT, goes without a hitch.

The long-term is an issue though, QE is going to cause inflation and long-term bonds at under 5% return with no inflation guarantee does not look like a great investment, hence the lack of buyers. Do you think inflation will stay so low for the next 40 years?

If the Bank of England ends QE early, then we will see if there is a short-term strike too. To fob off yesterday as a blip is incorrect, it is still a big warning. Hence Mervyn King sounding off earlier this week.

The Government is going to have funding issues big time if it follows a route of spending more money without any cuts in other expenditure.

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