Our future’s bright if only the government would use the money people want to lend to it wisely

Posted on

The FT had an article yesterday which opened with this comment:

It has never been cheaper for the UK to borrow money over the long term – something the current coalition government has not been shy to promote as a sign of its tight grip on the country's purse strings.

To reinforce the point it included this graph:

Screen Shot 2014-12-12 at 05.36.24

The price of UK government borrowing has been tumbling, and the UK government has been exploiting that to refinance part of its borrowing, and is saving money as a result.

The FT is worried though: it says that low gilt yields as shown here either represent a solid and secure home for money in a storm or are clear indication that there is no confidence in the long term growth prospects of an economy, and they think that the latter is the prevailing trend in the UK right now.

U think both are right. Despite everything George Osborne said in 2010 the UK government has, despite its massive and record levels of borrowing in the last five years (which far exceed all that was borrowed in the previous thirteen) UK gilts remain a solid and reliable investment carrying very little risk, and that is why they are so popular.

And it is also true that people are putting their money in gilts because they have little confidence in anything else.

Oil is falling - and there is a lack of confidence (and rightly so) in the whole future of the sector when most of the world's known oil reserves will have to stay in the ground to prevent global warming.

Other commodities are suffering as a result.

Retail is suffering from a lack of consumer spending and management misunderstanding of consumer trends.

Banking exploits still, but the penalties of being engaged in the activity are now so high that only senior employees really win in this sector.

Tech is not offering new solutions to very much, to be candid, which is why apps like Uber are so massively overvalued, whilst tax risk suppresses valuations, and rightly so.

To put it bluntly, capitalism is in the doldrums. It has run out of steam. It has no answers to offer. That's why it is so desperate to get into privatised services and outsourcing: the pubic sector is, many companies have realised, the only game in town where there is a reliable source of income.

And many investors have circumnavigated that process and simply given their money to the state because they think it will make best use of it.

So Osborne has been wrong again. There has been no 'march of the makers'. And there has been no rush of the private sector to fill the void the state has tried to create into which entrepreneurs were meant to flourish, and nor will there be over coming eyars as he pulls back state spending even further. There is just inactivity because markets have no idea what to do any more: the ideas have run out.

But the need for state services has not: that's alive, buoyant, and would be flourishing and be wealth creating on an enormous scale if only we let it get on and meet public demand.

And I do mean wealth creating because wealth is not  about accumulating piles of cash: wealth is about setting people free to work.

UK capitalism is not doing that right now. If it used green quantitative easing and the Green New Deal the UK's government could do that. The money is saying it should do that. It's time to listen to the money. The future of our prosperity is bright but it rests with the state, and the state's got to be willing to fulfil the promis of using the money entrusted to it wisely.

Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:

You can subscribe to this blog's daily email here.

And if you would like to support this blog you can, here: