Why we need more government debt

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I meet quite a lot of people who work in bond markets. Time and again they tell me about the shortage of good quality bonds — and the need for them.

They need them because an aging population needs the stability of bonds to underpin its risk averse investment profile.

We have an aging population. Look at the bulge of those retiring over the next few years:


The number of 65 year olds is about to jump, enormously. That’s because of the end of the war. people had a lot of sex to celebrate. And once in the habit they carried on. The bay boomers are going to retire over the next decade or so. Many of them will want to but UK gilts to underpin their pensions.

No debt: no security in old age.

That’s the deal for them.

So we need more government debt to ensure they have the old age they want to enjoy.

All of which says now is not the time to make debt reduction the number one economic priority. Creating a growing economy is. And debt reduction and growing economies don’t mix — not when there is mass unemployment at the same time, as we have.

In that case — blow the debt. As I’ve just shown, and as this logic shows, that debt is wholly marketable. The real problem is there are no jobs and so no prospect of growth in our economy. The private sector is doing nothing about that fact. And that’s why right now, as I have also shown, spending pays and cuts will be devastating.

I know there will be howls of protests in response. And every howler is wrong.