Savers, thanks for bailing out our bankrupt country...

I guess the budget deficit might well continue to run at a loss of, say, £20 billion per month. It could more easily be worse than better. Given a working population of say 30 million, that is circa £8,400 per annum per employee. Think about it, that is a similar amount to the tax and NI the government collects from each employee on an average income. In other words the government has to grab as much money again, as it collects in Income Tax and NI.

The important question to ask is where are they getting the money and to whom is it owed?  Sadly, in one way or another, it's us, the public. It must either be by spending cuts in the public sector or taken from the private sector or more likely both.  There is no 'Third Way'.  I believe those who have saved will having their piggy banks are being well and truly smashed.  Savings will be wasted away as inflation and tax take away more, much more, value than the investment return from your savings.

Here is my take on it:

We have ongoing historically massive trade and budget deficits that will not disappear any time soon. They will somehow need to be financed as will the interest due on the huge existing debt.  Where on earth will the funding be found to keep paying the bills?

Our financial institutions, generally speaking, have no money of their own so how can they be expected to purchase gilts at below 1% yield to finance the government's budget deficit? The answer is, of course, they can't, of course nor do they want to.  They want to lend to the credit strapped private sector at, say, 7% backed by solid collateral.

However, trustees of public savings, pension funds, wealth managers etc.  may well do so. Bravo, you are bailing out the country. Yet shame too, we will be investing in the Government at 0.5%, or even 1% without any meaningful collateral - that's not a smart move.

Aha I hear, the government cannot be bust, it is the best credit risk possible. Well normally perhaps yes, but at the moment it is far from it. Government will not be able to complete its gilt sales without first giving money to the institutions that will invest (AKA QE).

What about the IMF, or World Bank? They don't have enough at their disposal and, in any case, there will be other, more deserving nations ahead of us in the queue.

Doesn't sound too promising does it? Sounds like the government will take what they can from an unsuspecting public, and print the rest; they will re-introduce QE. At this stage the economy may be dipping back into recession and there will be a call for further stimulation, but the real reason for the re-introduction will simply be to enable the government to pay its bills.

That is how Zimbabwe and the Weimar republic destroyed wealth. Whenever they ran out of funding to pay bills, they printed it. All traditional prudence and discipline was lost, it was just too easy to print it. It no doubt seemed a victimless crime. But once the enforced grab of savers' wealth was complete the system failed completely and it became all about who owned what assets; barter! But even that didn't work as society had broken down too.

I can see the argument for QE in times of extreme distortion of the economy, in the very short term. This government has claimed it believed in a policy of sound money, a claim that now looks totally ridiculous. Do you believe they will do anything other than contine to take the line of least resistance?

NO! I thought not -  Go short GBP long overseas assets, esp. Far East.

Disclosure - I live and work in the UK