The government needs you to pile on debt 
Dear Buzzhairs Buzzhairs, Last week's government spending review was pretty uninspiring. It was really nothing more than a grand rehash of existing spending promises. I guess there's not a lot for Osborne to work with. There's no more money left! But this brings me back to something that's bothered me for a while. If the government is so desperate for cash to spur the economy, why doesn't it let investors like you and me put the money up ourselves? We hear about austerity all the time, but UK investors have plenty of money, and they're always looking to put it somewhere that will pay them a nice return. So why doesn't the government, instead of racking up more and more debt, find a way of allowing pension funds and individuals to put money into infrastructure projects for example? Things like new airports, power stations, broadband lines… heck, even high speed rail if they think it could be profitable. The country needs better infrastructure – everyone seems to agree on that. And the country is awash in money, looking desperately for a return. Why not put the two together? Why not let the private sector finance infrastructure? Why not let the private sector own some of it? The country gets infrastructure, private investors get a return and the government doesn't add to its crushing debt-pile. Well there is answer to all of these questions. But I'm afraid you're not going to like it…
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Is Britain heading back to the nightmare 1970s? MoneyWeek believes we could see a re-run of the “decade of decimation”. Will history repeat itself? See for yourself in this FREE report. MoneyWeek magazine is an unregulated product published by MoneyWeek Ltd. The undeclared "supertax" on Britain Don't judge me, but when I wonder about why this hasn't happened yet, I can't help turning to extravagant theories for answers. Even some of the wackier ones seem to have a grain of truth in them. How do you feel about this one: maybe the government isn't interested in letting private investors pick up the tab because powerful forces behind the scenes are encouraging governments to take on more and more debt. These guys own huge quantities of government bonds… they own the political parties and drive government policies. Put simply, powerful families, banks and businessmen behind the scenes yearn for the government to increase debt. They then skim the interest on the bonds… it's like an undeclared super tax on nation states. Conspiracy theories can be wonderfully intriguing. The one I just outlined was actually the plot for a 2009 film, The International. In the film, 'the international' is a merchant bank with more than a passing resemblance to the failed Bank of Credit and Commerce International, which infamously went down in the '80s. The storyline whizzes between munitions deals, corrupt governments and assassinations. But the protagonist (played by Clive Owen) soon realises that, for all the arms sales and the power broking, only one thing really matters to the bank… getting governments into debt. The bank, you see, wants to broker bond sales and ultimately be the master of government bonds… a very real symbol of a nation's servitude. OK, maybe I'm getting carried away, but can you blame me? After all, there are times when the realms of fact and conspiracy start to merge. Before 2008, who'd have thought the banks could wield such power over central banks, and hence government? And there's no doubt, Western governments have got themselves into a fantastic amount of debt over recent years. Even as we march on our so-called austerity drive, the UK is racking up debts faster than ever. It raises some big questions. And who profits? Well, it's the bondholders… they being the banks (and yes, private investors too). If you follow the conspiracy trail, you'll be told that trillions of dollars of government debt is owned by the ultimate power-brokers in offshore havens around the world. Every year, the guys behind the curtain rake in billions from nations all over the globe. So maybe a Clive Owen-esque figure isn't jetting around the globe trying to foil the world's evil puppet masters. But we should certainly feel uncomfortable about the amount of power that holders of government debt are wielding. |
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How to save Britain from its debt
Although it's fascinating, I'll have to park my pet theory in the annals of fiction. But I'm still very curious about why the government doesn't encourage private money and private enterprise into so many different areas of the economy.
OK, so we had the Private Finance Initiative (PFI). But that was an abysmal episode where a select group of private enterprises were allowed to rip off the government, and ultimately lumber it with more debt… much of it off balance sheet.
What I'm suggesting is selling equity in worthwhile national projects. All that's needed is the will to do it. Tax incentives and deregulation would help, allowing pension funds and private investors to release cash into the real economy. The pensions industry barely looks outside the bond and equity market. Largely speaking, regulation ensures that is the case.
There are some exceptions. There are private equity funds and if you've got a decent Sipp, you can buy investment property in the 'real economy'… but then again, the yields on these things aren't much better (if better at all) than in the financial markets.
What I'd really like to see are policies to allow large private funds to get involved with the big projects: airports, railways, telecoms!
There's plenty of private money about, and investors are almost certain to use it more effectively than the government would. So it's madness that governments are driving us deeper into debt. Pension funds… the investment funds that really should be driving our economy forward… put our life savings into government bonds and expensive shares.
Why on earth do they do it? I'd welcome any ideas in the comment section below. And in the meantime, if you like a good action-thriller, watch The International. Perhaps it'll help you come up with your own theories…
Good investing,
Bengt Saelensminde
The Right Side
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