Liquidity, Solvency and Cuts
A number of public spending cuts have been announced today. What is absolutely certain is that the UK Government has to cut the deficit reasonably quickly.
Germany is paying around 2.633% on its government debt. The UK is paying 3.516 on government bonds and Greece 7.8%.
This is all based upon how risky investors perceive the debt. If we don't show a commitment to bringing the deficit really under control then the interest rate we have to pay goes up.
This year's forecast deficit is over £150,000,000,000. Just for that borrowing interest of £5,274,000,000 will be due to be paid each year. At the Greek interest rate this would be £11,700,000,000.
This has a massive long term effect.