Just to remind - there is no market for more gilts, more government borrowing

Just to pick a specific instance of something incorrect oft said:

Up and up goes the national debt, but still there seems to be no shortage of investor appetite for UK gilts.

This is not true. The Household Analogy holds for governments just as it does for households.

There’s a very distinct shortage of investor appetite for UK gilts. This is also trivially easy to prove.

Just using very round numbers the outstanding issues are some £2.7 trillion. For which there is such little appetite that the Bank of England has had to invent money to buy £700 billion of them (about the current QE stock). So, the current market won’t even absorb 25% of what is already in existence. That’s not evidence of no shortage of investor appetite.

If the BoE were to try to sell that 25%, that £700 billion, it would drive prices down and yields up. Indeed, we all expect the BoE to try to sell some portion at least of that QE gilts stock in order to drive prices down and yields up at some point.

So, OK, at current prices then there’s a shortage of investor appetite for gilts. But then that’s always true, isn’t it? We don’t have shortages of things, we have shortages at a price. At current prices there’s a shortage of investor appetite - about £700 billion’s worth in fact. QE is QED.

Which is why the household analogy does work. Sure, sure, governments can just print and all that. But they still face price limitations on credit just like anyone and everyone else - even households.

Tim Worstall