The worth of government bonds
The Chancellor of the Exchequer recently attracted quizzical headlines when he proposed the selling of low interest 100 year government gilt bonds to institutional investors, as a means of locking in the present low interest rates, and so avoiding payment of billions in public debt interest.
It was a move which puzzled the markets, because institutional investors – mostly final salary pension funds and life companies – have been enduring years of retraction, long before the present depression. It was therefore not immediately clear who might be interested in purchasing these bonds, or whether many potential purchasers would themselves exist in a century’s time. Private pension funds are being closed off to new members, and there may not even be a state pension a few decades hence. The business climate since the 1980s has been increasingly characterized by short-termism. outsourcing and a “pile ’em high, sell ’em cheap” mentality detrimental to long term decision-making and trustworthiness.
But perhaps an even more interesting point is whether there will be a British government in 100 years’ time. After all, the attractiveness of these bonds resides in Britain’s perceived political and constitutional stability as much as in purely economic factors. The Britain of 2012 is wildly different from that of 1912, and that was before such pressures as Celtic nationalism, EU expansionism, big business globalization and mass immigration. Taking these things together, it is surely not alarmist to believe that the Britain of 2112 will probably not be as confident, united and, well, British as that of today. It is even just possible that the inhabitants of that impossible-to-envisage island may even look back upon our times as a Golden Age – or at least a gilt-edged one.
Derek Turner, 18 March 2012