Okay, it’s not the same Fred Goodwin. This one works as an analyst at Nomura, apparently.
But the Tories have seized upon Goodwin’s report which suggests “the prospect of a UK fiscal crisis is a clear and present danger”. The report suggests that a fiscal crisis is “far more likely” in the UK than in the US – because the dollar is a reserve currency.
“The UK fiscal dynamics are unsustainable. The fiscal balance is plunging deeply into the red in a spectacular and frightening way. Who will fund it? Without QE (quantative easing) the possibility of failed auctions is not trivial.”
Apparently the government’s mega-programme of gilt issuance (selling bonds) has not yet been fully tested – because it has been exceeded by QE (buying bonds).*
When the government turns net seller we will see whether there truly is a market appetite for UK gilts.
George Osborne described the Nomura report as a “wake-up call” with Britain’s “international reputation” at stake. Privately, however, the Tories must be as worried as the government is – given that the situation may still be with us in eight months.
UPDATE
The exact figures are as follows:
* As of September 10 there has been £145bn of QE (assets purchased by the creation of central bank reserves), of which £143bn has been gilts. The process began on March 11.
* Since that date the Debt Management Office has sold £95bn of gilts.
Jim Pickard
Kiran Stacey