The second was that as government borrowing increased so would the interest charges that had be paid on it, so increasing the cost of debt to the point where the government would collapse under the burden of its debt obligations. In 2010 George Osborne was all too anxious to draw comparison between the UK’s situation and that of Greece. This too has now been proved to be ludicrous despite the fact that the coalition government has now borrowed more since coming to office than the last Labour government did in 13 years on office. As the FT said yesterday:
Ten-year yields on core government bonds, which move inversely with prices, have edged lower in 2014 – defying a near-universal start-of-the-year consensus that the only way was up.
This, incidentally, is true across a number of major countries, and not just the UK. The fact in that case is that there has been no crisis of confidence. Instead people are actively seeking to buy government debt.
In that case the question to be asked is why we are not exploiting this now to raise the funds to invest in the way this country so desperately needs? It’s economically absurd not to do so.
How about this?
So, if we had been borrowing like drunken sailors then interest rates would be higher than they are now. So, we’ve got low interest rates because we’ve not been borrowing like drunken sailors. Meaning that if we did borrow like drunken sailors interest rates would rise.
This explanation may or may not be correct but it is a possible one. The logic stands after all: I have not gone splat on the ground as a result of leaping off a 10 story building as I didn’t leap off a 10 story building. But that I’ve not gone splat as a result of not jumping doesn’t mean that I would not go splat if I did jump.