Tuesday, 8 December 2009

Moody's defines new kind of financeability

FT Alphaville reports on Moody's new definition of financeability with respect to the UK's public finances.

Demand for gilts has also been supported by the Bank of England’s quantitative easing operations (with £181 billion of gilts purchased since March — about the same as total government issuance over the same period). This has been supplemented by regulatory pressure by the Financial Services Authority on banks to purchase government bonds to build up liquidity buffers. While both measures only generate demand temporarily, they contribute significantly to the ability of the government to borrow very large amounts on favourable terms. A high degree of financeability does not substitute for fiscal adjustment, but offers the government time to prepare and implement this adjustment.

If only all of us could benefit from this kind of financeability. Just how this differs from a Ponzi scheme is left to the reader's imagination.

Seriously, does anybody really believe that this can go on much longer?

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