PSNCR, It got me thinking...

Whilst working on the plot of my next book, I had a phone call from a friend who was writing a follow up article on the EU and the single currency. Would Greece have got into such a mess if they had stayed out of the Euro? He asked. It got me thinking (at a tangent).

The UK's Public Sector Net Cash Requirement (PSNCR) is out of control and little is being done to stop the spiraling size of this liability which will fetter our next generation. Investing for growth has merit, but how much of the massive Government spending is in reality targeted on growth? And in contradiction our universities are having their budgets cut and they are the educators of the next generation of wealth creators... The UK is sitting on a knife-edge.

In the investment markets it is important to understand what the perceived view is, and to work out what will influence it, and change it. The markets are full of analysts with great looking CVs (BScs, MBAs, PhDs, CFAs, etc) and an ability to put forward their views in well thought through terms (usually). They understand the risk / reward trade-offs and how to play the markets to their advantage.

Why then do so many politicians play catch-up? 

And why is there so little debate on the sererity of the looming credit crunch which has the wherewithal to impoverish the next generation?  PIMCO, whose assets under management, have just topped $1,000 billion, have recently estimated the UK's public and private debt at 466% of GDP. (as I commented on in http://www.ebooktumble.com/latenthazard.html). PIMCO has decsribed UK gilts as a must avoid... and resting on a bed of nitroglycerine.

We can't spin ourselves out of this one. 

At what point will our politicians wise up and realise that the perceived view is changing and the reality is that they have to start doing something meaningful now, whilst they can. If it remains all talk, bluster and spin, they face the prospect of being overtaken by events. The risk is that a tipping point will be reached beyond which is a financial hell. 

In this after world, we (the UK) will still need to borrow large amounts of money, but investors won't want to lend to us, unless it is at (very) high rates of interest. Perhaps the politicians should ask the finance director of a small or medium sized company what it is like dealing with banks in the current economic environment - will they lend? may be, and if they do, the interest rate will be exorbitant.  Leaving the hard decisions to much later in the year is starting to look very self-interested. In short the ability to finance growth could become a secondary issue. The main issue could simply become - how do we stay afloat?

We need a new Government with a mandate to do what it takes to stop our borrowings and our economy from going totally off the rails. 

Imagine what the Greek Prime Minister would be doing if he was currently in the middle of a General Election...

What ever the outcome, we need to get the General Election out of the way as quickly as possible, so that our politicians can then place the country at the top of their priorities. The alternative is delay, and then facing the priority of getting re-elected, while sterling and gilts get hammered. 

Quantitative easing has bought the Government valuable time, it would be a shame if it was all in vain.