When debt’s this cheap it would be irresponsible not to use it

Posted on March 14 2012

The UK chancellor aims to launch an “Osborne bond” — a 100-year debt issue or even a perpetual gilt that never matures — to take advantage of the country's historically low interest rates.

The plan echoes similar bonds issued to finance debts after the 18th century South Sea Bubble and the first world war.

George Osborne will say in next week's Budget that he wants to “lock in” the benefits of Britain's low borrowing costs, which he says reflect market confidence in his fiscal plans.

As I, and others, have long argued, the government has a duty to borrow now to promote employment in the UK economy. And right now inflation adjusted interest rates on government borrowing are near enough zero, or negative, and nominal rates are astonishingly low. The UK government is the preferred borrower of choice in the markets.

In that case it would be recklessly irresponsible of the government to refuse to borrow to promote growth in the economy through a Green New Deal. Perhaps the message is sinking in to George at last. Most of the ideas I've been involved with seem to be, gradually.

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5 Responses

Matt Sisson says:

March 14 2012 at 10:19 am

If this actually happens, it will be interesting to see where the political message goes next. Either it will be “Look, austerity is working, lets have more of the same”. Or “look, our debt is less dangerous, so now for Plan A++”.

Here’s hoping for the latter, but time will tell.
ntp3 says:

March 14 2012 at 11:27 am

I would like to draw people’s attention to Shiller’s paper ‘IRVING FISHER, DEBT DEFLATION AND CRISES’ from August 2011, and on page 7 of that precis of his past work, Shiller again puts forward the idea of ‘trills’ for selling government debt. He expands on this in ‘THE CASE FOR TRILLS: GIVING THE PEOPLE AND THEIR PENSION FUNDS A STAKE IN THE WEALTH OF THE NATION’ from August 2009.
rjohns16 says:

March 14 2012 at 4:12 pm

Nope, I don’t think that’s it.

The government is not proposing to borrow more using the 100 year gilts, it’s simply going to issue bonds with these maturity dates as part of their ongoing issues to try and keep the interest rate repayments down in the long term. This would not mean more borrowing, no new Green Deal, just a further diversification of what maturities are issued, which currently ranges up to 50 years.
- Richard Murphy says:
  
  March 14 2012 at 4:20 pm
  
  I was talking what it should mean
  
  Not what it may mean
Alex says:

March 18 2012 at 12:55 pm

“to take advantage of the country’s historically low interest rates”

Well you don’t do that by borrowing money for a term of 100 years. The low interest rates are at the shorter end of the yield curve (you have to look at the zero coupon yield curve rather than a par-trading gilt yield curve), but at the longer end of the yield curve they revert to historic norms, and there will always be higher interest rates on very long bonds or perpetuals, so I doubt there is any advantage to a 100 year bond compared to 10 year gilts.