Bond markets boom – why are we cutting?
The Tories originally told us that they had to make cuts because we were borrowing too much. The argument was that the bond traders, from whom we were borrowing, would take fright and insist that the government pay higher interest rates. This was always largely bollocks, for a number of reasons.
One of those – pointed out by economists from across the political spectrum, and highlighted on this blog in my “a-z of why these cuts are mad” is that, as the global economy collapses, where else will investors put their money? Bond markets may be less safe than they were two years ago, but so is everything else.
Well, today, the FT reports, on its front page, that equity markets have collapsed, and investors are rushing back to bond markets – rushing to lend governments money. Of course, because these bonds are auctioned this will actually reduce the cost of borrowing money.
This exposes what the Tories really wanted to do: make swingeing cuts to public expenditure because they’ve never liked that kind of this. The impact of these ideological cuts is yet to be seen, but the warnings from the Bank of England that growth forecasts have been revised down gives a good hint of what will happen.
Yes its an excuse, its easier to sustain debt at present because its obvious in difficult times that governments are less likely to go under than firms…so markets buy bonds.
Interest rates are also at a historic low.
However rising oil prices could hit us with stagflation, stagnant economy and rising prices, forcing the MPC to push up interest rates which would cause severe crisis….oil dependency is a real economic problem.
And of course the basic model of the economy is unsustainable for many reasons, I should probably stop here or I will get on to a long discussion of Elinor Ostrom.
Any way good post about the present neo-liberal madness.