There is a shortage of government bonds – and the way to solve it is for governments to borrow

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If you believe most politicians the worst thing that a government can do is borrow. That is not true, of course. The reality is that right now many of the world's governments, including that if the UK, should be borrowing more, most especially to fund a Green New Deal. And the cost of doing so is, in effect, nothing because most government borrowing now has below zero net cost.

And markets agree. The FT published this today:

Government bonds issued by big developed economies have surged in price this year – pushing yields to record lows. A key reason is that these “safe assets” are in short supply.

A wide variety of investors and corporations prize the highest-quality government bonds for their cash-like qualities – and the near certainty of getting their money back. This demand has grown since the financial crisis as central banks hoover up a hefty slice of bond markets under quantitative easing programmes.

According to research by Oxford Economics, the resultant global shortage of these safe assets is going to get worse. The consultancy calculates that the supply of these assets will grow by $1.7tn annually over the coming five years – with a $1.2tn issuance of bonds to fund the US budget deficit the largest driver. But demand for these assets is estimated to grow more rapidly, creating a $400bn annual shortfall and indicating that government bond yields are set to remain low.

So, governments need to borrow. The world needs a Green New Deal. Business investors want to fund it. And I have shown that savers would too. And politicians don't want it to happen.

Someone has got something wrong here. And let me suggest it is the politicians. The reality is that the demand for government bonds is real, continuing and unlikely to dissipate for a long time, with QE as a back top if it ever does.

So why can't we get on and deliver what is required? Why do politicians want to stop what is so obviously desirable? I wish I knew.

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