As Larry Elliott notes in the Guardian this morning:
As Michael Saunders of Citigroup puts it: "The ultra-low level of gilt yields is practically an invitation for the government to borrow more".
And any rational person would invest when the real cost of borrowing is only 1% or so, and not just in the short term but over the longer term too. There have to be massive numbers of projects that can provide yields for society at that rate - especially as people are virtually begging the government to take their money from them.
But no, Osborne insists on cutting spending, as this graph of actual and forecast investment spending taken from budget reports published by HM Treasury shows:
Paradoxically at the very time when the economy is crying out for investment the government is actually net disinvesting this year having allowed for depreciation of existing assets. In the face of such irrationality it's hardly surprising we're in recession.
And it's equally unsurprising Labour pulled the UK out of rescission so quickly in 2009: it invested to make sure that the essential counter cyclical trend that a government has to create in a downturn was available. It's a basic economic lesson Osborne has not learned.
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Martin Wolf, FT, has also been saying same in his last two blogs. See http://blogs.ft.com/martin-wolf-exchange/#axzz1cU0CZuL2.
This leads to a pretty basic question regarding what Osborne and his Government is doing. In a situation where the economic stimulus needed to return the economy to growth is so cheap, for the Government not to take the opportunity means one has to ask whether they want to return the economy to growth at all.
It is a serious accusation to be sure, but I wonder if the Government is happy to see the economy struggle as it provides ideological cover for their agenda to return us to the days before the welfare state,
It is also a good reminder that when Labour came in in 97 they followed the previous Conservative Govt economic strategy – low investment – and only once they found their feed the investment really started.
And it is also very clear that the cynical ploy of the Condems is to do only 1 year of investment – right in the lead up to the next election. They really really do think we are all idiots. Sadly, judging by the reaction of the Daily Mail in your other blog later, they have some evidence for that viewpoint.