Is this the best time for the global economy since the late 17th century or not?
The Government has repeatedly argued that low interest rates on government bonds are sign of market confidence.
Those who argue we should spend more want us to borrow more, driving up our deficit and our debt and putting our hard-won credibility and low interest rates at risk.
I argued last year (at tedious length) that this was not the case.
The current low level of yields then is a warning about weak growth prospects rather than a ringing endorsement of the government’s economic strategy.
Since I wrote that piece the yield has dropped further. With the UK dropping into a double dip recession, is it really still the government’s contention that record low yields are sign of success rather than failure? Have things got better in the past 5 months?
As Brad DeLong notes today (quoting the Business Insider website):
- The yield on the US 10-year bond has just fallen below 1.7%. UPDATE: the yield has just hit 1.6713%, a brand new record low.
- In Germany, the 10-year has fallen to a new record of 1.33%.
- UK borrowing costs have hit a record low of 1.73%.
- In Finland, the yield on the 10-year is 1.624%. You guessed it, that’s a recordlow.
- Sweden: The 10-year yields 1.405%. Same deal.
- In Australia, the 10-year has dropped close to a record low of 3.061%.
- Canadian 10-year yields at 1.87% are close to a record low.
- Japan’s 10-year: 0.85%.
- Swiss 10-year: 0.59%.
A quick glance at the charts in Sidney Homer’s ‘AHistory of Interest Rates’ suggests that global long-term interest rates are hitting record lows. In fact, the only time I can see long-term government yields being lower than they are now in the UK, Germany, US, etc. is a brief dip in the yield on the debt of the Dutch Republic below 2% in the late 17th century.
The question the government should be asking itself is this – are these really the best times for the global economy since the late 17th century, or have they misread what the bond market is telling them?