Markets think that the monoline insurers who guarantee the risks on bonds might be about to go bust.
This is worrying. The whole point of monoline insurers was that they were meant to guarantee things like local authority bonds and simple company bond issues where the risk was effectively all in one market (hence 'monoline'). The trouble is they diversified into sub-prime mortgages. And now they're deep in trouble.
My concern is that this might stop faith in bonds themselves at a time when we badly need bonds in issue to pay for the borrowing that will be needed by governments, local authorities and others to do the public works that will see our economies through recession.
But then, I guess the government will just have to be lender of last resort. The precedent has been set.
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Why is borrowing by governments necessary? That is only a convention, because the Public/Private divide is based upon an assumption that “Public” = State and “Private” = owned by a Joint Stock Limited Liability Company.
But there is no reason whatever why assets should not either remain in State ownership, or (better in my view, in the hands of a Custodian) and revenues “unitised” through the use of alternative legal ownership “wrappers”.
For instance, in Canada, the entire Capital market consists of a combination of listed shares and listed units in the gross income of listed companies.
Partnership and quasi partnership vehicles would be even better IMHO – look at the Blackstone IPO, as an example where the Chinese did not buy conventional shares, but units in a Blackstone Limited Partnership revenues. So the Chinese get the income, and Blackstone maintain control.
Why should we not have a “National Equity” subsuming a large part of the ludicrous “National Debt”?
If we dispense thereby with conventional debt repayment, and offer a reasonable (eg 1 to 2% index linked) return on this “Public Equity” we really CAN do something about public investment.
Wouldn’t it be fairly obvious for Child Trust Funds to be invested at a reasonable index-linked rate in the very schools and medical facilities the child will be using when he grows up, instead of being placed on interest-bearing deposits and eroded by inflation, or (worse) gambled on the Stock market…
Chris
I think your idea is converging with that I wrote called People’s Pensions at this point – and I welcome that.
See http://neweconomics.org/gen/uploads/5tszyf45onhtul304dxxkfzk12082003133509.pdf
Richard
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