Intercity trains upgrade postponed | UK news | guardian.co.uk .
It's claimed that:
A £7.5bn contract to replace Britain's ageing intercity train fleet has been postponed after the government blamed the state of the debt markets and slow growth in passenger numbers for creating uncertainty over the deal.
This makes no sense at all. We will run trains in the UK for the next thirty plus years. These are assets with a life at least that long. They can be used as security. They will generate an income stream. the demand for high quality asset backed securities with an identifiable income stream is large. We need to build these trains - preferably in the UK, of course.
Can no one in government see the logic of the Green New Deal (see right hand column)? This is exactly the sort of project, if UK based, that we need now to revitalise the UK.
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Is there a market for this debt?
Next year the PSBR could be £175bn and the bond markets are already getting jittery about financing that. The markets want the deficit cut and instead you appear to want to increase it by another 5%.
There is only so much spare cash in the world, and at the moment there is a lot of sovereign debt trying to attract that cash. So bond yields are going to go up. Surely under those circumstances it makes more sense to postpone this contract until after the economic recovery starts, doesn’t it?
Try telling that to the ex railtrack shareholders who overnight had a company with a market value of billions taken from them by the current government, the problem here is that in theory this sort of thing would be a good thing to invest in but with the rules changing all the time and the asset being something the government could always enforce any whim it fancied upon on the grounds of it being in the public’s best interests the market would demand a fat risk premium on any investment. Really a government with lower borrowing costs is best placed to make this long term investment, however this wont happen as the government likes to keep sane investment off its balance sheet through the use of PFI and other horrible vehicles. Both parties are guilty of this short termism so there is no hope ….
🙁 It is much much worse than you think. It seems that the overhaul of 4472 (later 60103) “The Flying Scotsman” will not be finished until 2011. It has had two previous ones, the first being around 1950 when I believe it was reboilered with one from another A3 at Doncaster. Before then it had been shedded at 38C Leicester Great Central for a while when the old boiler was not longer up to high speed duty.
I agree with Richard (one of the few times!). I’d guess that this won’t be the first time important spending is delayed or stopped due to the perilous state of the UK’s finances.
@Cantab83
You’re wrong
There is unlimited cash in the world
The argument that there is limited cash shows a fundamental lack of understanding of economics
You also have economics wrong on another issue: the recovery won’t start until we do spend. The private sector won’t spend so the state sector must. If it does not we will; never have a recovery
Sorry – but your logic is wrong throughout
Richard
@catsick
Largely agreed
Government guarantees will be needed to make these things work
And why not? If the banks enjoy that guarantee why not others?
As for PFI…we agree
Richard
@Demetrius
It’s glory days on the GC main line, eh?
Before the Master Cutler at its best though, I think?
Cracking good shed though – it’s V2s showed what could be done!
Richard
There is unlimited cash in the world
The argument that there is limited cash shows a fundamental lack of understanding of economics
sorry richard – that needs more explanation – @ least to this FCA with a degree in economics !
@Richard Murphy
“You’re wrong
There is unlimited cash in the world
The argument that there is limited cash shows a fundamental lack of understanding of economics.”
Richard, are you claiming that there is an infinite amount of money or wealth in the world?
If this were true it would mean that (because the number of countries in the world is finite and less than 200) every separate national economy would have an infinite amount of money in it.
Infinity divided by any finite number is still infinity!!!!
And by the same logic, every person would also own an infinite amount of money.
And even if the amount of money in the world is not infinite (just much larger than the amount of debt), what would then govern bond prices if it isn’t the balance between supply (money) and demand (debt)? There may in practice be plenty of cash to be found, but only at a price. The more you need, the higher the price (i.e. interest rate).
If your statement, or at least my interpretation of it, is true, why have Western economies devoted so much effort over the last forty years to monetary policy, i.e. controlling the money supply? Irrespective of whether it is M0, M1, M2, M3 or M4 money? You can’t control it if it is infinite, and you can’t then control inflation either.
The fact is that every economy has a finite amount of money in it. The amount of M4 money depends on other measures of money (M0, M2) and the capital adequacy ratios of banks.
Governments can of course print as much money as they want (as in QE), but there is a cost: inflation! Is that what you are arguing for? It may be that that would be no bad thing, or at least better than some alternatives (so long as it didn’t spread to asset prices such as housing), given that this country has clearly been living on cheap credit for far too long, and therefore living beyond its means (and I don’t just mean the Government). Some form of gradual readjustment has to happen.
@eugene
Please see http://www.taxresearch.org.uk/Blog/2007/09/18/all-money-is-a-confidence-trick/
So long as credit can be given then there is unlimited money. Money is not a physical thing: money is credit
In the case noted it has been decided to not ask for an extension of credit for the time being. The reasoning is wrong. If credit had been extended – whether from a central bank or commercial bank there would, in a time of unemployment, have been sufficient additional activity via the multiplier effect to repay the credit extended. In a time of unemployment money is, for a government, effectively cost free, as I have shown here http://www.taxresearch.org.uk/Blog/2009/12/08/the-only-way-to-cut-government-debt-is-to-increase-government-spending/
Money can therefore be created whenever desired – so in effect is limitless, especially to government. And the argument about inflation is simply not true – again in a time of unemployment
Read Keynes, not Friedman I suggest.And even the latter agreed the obsession with controlling money supply was. in the end, misguided.
Richard