Finance a once in a 100 year event with 100 year bond

Bank of England quantitative easing is sitting at around £900 billion. Total UK public debt is around £2.1 trillion and growing. The govt pays no interest on the £900 billion of QE money printed by the Bank of England. My suggestion is that the government should bundle up all of the various bonds owned by the BoE and convert them into a single bond with a zero interest rate and a term for 100 years. This term would match the frequency of the 2 extraordinary events that cause the govt debt to explode (once in 100 years events). This is a simple concept that could be communicated to the British public as a sensible policy. The QE does not seem to have generated any retail price inflation and any asset price inflation that it has caused is going to be difficult to unwind without catastrophic consequences. Ring fencing the QE debt to be repaid in 100 years would 1) remove the need for austerity caused by paying down the debt on a shorter timescale, 2) remove the need to increase taxes which would slow economic growth 3) reduce non ring-fenced govt debt to about 65% of GDP giving the govt headroom to borrow more to invest in infrastructure projects to grow the economy 4) reduce the burden of debt caused by 2 exceptional events (GFC & pandemic) – over 100 years at 2% inflation per year and no interest on the debt, the £900b would only cost the equivalent of £130b in now money to repay in 100 years.

 

 

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