Monday, December 15, 2014

Groundviews: The Contest.

Groundviews had published an analysis on the election. I wrote this as a comment:
The problem, which the business community and anyone else who argues for continuity has ignored is the state of the public finances.

We have an unsustainable level of public expenditure, which is being funded largely by foreign borrowings. Thanks to a general slowness in the economies of Europe and the US we have been able to raise debt at reletively low rates, to finance our expenditure.

We cannot expect such a benign situation in the debt markets to continue indefinitely. Sooner or later interest rates will rise (as soon as the US/EU cut back on quantitative easing) and we will then face a steep rise in debt service costs, which will push us into the same debt trap that Greece faces.

This is not just my view, it is also the view of the IMF and the international rating agencies. Those who want to continue on this path are advised to peer over the cliff face, first.

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