"The lesson of the Dalton era was upward pressure on interest rates may for a time be reversed by credit injection on a sufficiently wide scale," concludes The Market in
Gilt-Edged Securities. It adds if investors fear such an injection will result in an upsurge of inflation, then "the only way in which a cheap money policy can be maintained is through the achievement of a sufficiently large budgetary surplus".
He argues the government could, indeed, have issued
gilt-edged securities, or have given guarantees similar to those that allowed for the completion of the Channel Tunnel Rail Link.
It is initially offering [pounds sterling]50 billion ($99bn) worth of
gilt-edged securities but the size of the scheme will depend on how much banks need to get lending going again - and how much they're willing to stump up in costly collateral.
Doling it out to the rich won't work: if conditions aren't right--and of course they aren't in time of falling demand--the rich will simply grab whatever comes their way and put it into
gilt-edged securities. A Republican tax cut might give a fillip to the securities markets; it would be unlikely to reverse the downward trend in investment.
In order to stimulate the interest of the investor in such corporate bonds, the interest rates on government securities as well as T-bills and national savings schemes have gradually declined which have made some of these issues quite lucrative as compared to
gilt-edged securities market.
The fund aims to provide steady and consistent growth and invests approximately 60 per cent in UK equities and 40 per cent in Government
Gilt-edged securities.
Mike O'Shea of Premier Fund Managers backs bonds, unit trusts paying fixed interest rates and Government
gilt-edged securities. And he advises investors to think about the "Chicken Tikka Effect".
Secondly, the investment in
gilt-edged securities such as MTBs, PIBs and Sukuk need to be substantially declined in order to advance more credit to the private sector to accelerate economic growth.