As governor of the Bank of England, Mervyn King has access to a lot of insider information, but I wonder if even he could have known quite how prescient his warning about public finances yesterday would turn out to be.
Within hours of him telling Brown not to blow the budget, the gilts market has produced a ringing endorsement. An alarming report from the Debt Management Office shows that investors are already shunning government gilt auctions - in effect questioning the creditworthiness of the nation.
There have been failed debt auctions before and the Germans struggled relatively recently, but they are pretty rare. Given that the Bank of England is meant to be supporting the gilts market by pumping in money through quantitative easing, this is doubly alarming. The sharp fall in wider bond prices caused by this auction news is exactly the reverse of what this policy was intended to achieve.
Critics of Mervyn will no doubt point out that his recent caution may have caused the auction to fail, by giving investors the impression that he was going cold on the idea of quantitative easing. I think on this occasion, it is more likely the weakness in the gilts market is a symptom of what he was talking about, not an effect. We really are dangerously close to the edge.
