borrowing

Does the government determine the interest rate for bonds?

Readers question: Does the government determine the interest rate for their bonds? The government finances its debt by selling bonds on the open market. (in the UK they are termed gilts) In the UK, government debt is managed by the UK Debt Management Office DMO. They sell gilts on behalf of the government. Initially, they set the interest rate for new issues of gilts. A conventional gilt will have an interest rate and maturity set by the DMO. For example: 3% Treasury Gilt 2019 For example, this is a 5 year gilt at an interest…

Are there different types of government borrowing?

Are there different types of government borrowing?

Readers Question: National debt is now extremely high. However aren’t there different kinds of debt e.g that which funds current spending, that which funds investment in infrastructure and emergency (bank bail out etc) Surely it’s the first we should really be worried about and less concerned with borrowing that makes the economy more efficient such as infrastructure 1. ‘National debt is now extremely high.’ But, is national debt extremely high? In one sense, a public sector debt of £1,193.4 billion  is very…

The bizarre logic of deficit reduction increasing UK growth

The bizarre logic of deficit reduction increasing UK growth

The Prime Minister has got into a bit of pickle by trying to maintain the view that deficit reduction policies have not reduced economic growth, and in fact have had the opposite effect. “They (are) absolutely clear that the deficit reduction plan is not responsible (for low growth); in fact, quite the opposite.” (link) There is an economic logic to arguing that given the size of  the UK budget deficit, the government need to consider policies to reduce it. Economists will disagree over the timing of deficit…

How important is the budget deficit?

How important is the budget deficit?

Readers Question: how important is the budget deficit? This is an interesting question, and you will get different answers depending on which economist you ask – especially in the current crisis. Firstly, the budget deficit is the annual amount the government borrow. The government usually borrow from selling bonds to the private sector (though some countries like US and UK have a Central Bank sometimes buying gilts, through policies like quantitative easing) The most useful way of measuring the size of the budget deficit is as a % of GDP.  The graph…