The British government is deliberately ignoring the budget crisis that is unfolding before it, which is understandable as that is what governments do. However the market also seems to be ignoring this. What does this mean for spread betters and people who use contracts for difference?
The recent budget was a political masterpiece, and there are bound to be a few money raising and money saving ideas that are hidden in the fine print. However to really start reducing a deficit as large as Britain’s you need to bring in some drastic action in the open day. And that did not happen.
In Britain the market and everyone else assumes that this government is going to be replaced by their conservative opposition, and that the conservatives are just itching to get the whole thing in balance with tough measures and that they will have a convincing majority to do this. It all ignores the fact that the British public are convinced that budget cuts and tax rises do not need to affect them (whichever group they are in) and that the electoral system is rigged against the Conservatives.
A snap back to fiscal sense is still priced into the pound, government gilts, interest rates and the stock market. There’s money to be made (for full disclosure I’m short on the stock market – but I have lost a lot of money on this position so far, however nothing makes me see why it keeps going up and so I keep my short position).
We know from personal experience that debt when left to fester very rarely sorts itself out. We also know that government debt around the world is festering. So it is reasonable to guess that government debt will not sort itself out. Why is the market assuming that it is?