We seem to have ruffled some feathers this morning by pointing out that David Cameron sounded like, well, an idiot, by claiming that low interest rates were a vindication of the dismal economic activity under his watch.
The Guardian wails: David Cameron accused of idiocy over austerity mantra.
Anyway, we’re not accusing anyone of being an idiot, just briefly sounding like one.
And furthermore we think our point might still be confusing.
The key point we were trying to get across is that low government rates are nothing to brag about. They’re a sign of economic stagnation, the likes we’ve seen in Japan and the US. Low rates mean investors absolutely have no attractive investment opportunities, so they’re willing to buy UK government debt just because the UK has a printing press that will guarantee the payout!
And just in case it isn’t clear that low rates are bad, here’s a chart we made that we’d like someone to forward to David Cameron.
It’s a 5-year look at the FTSE 100 (the UK benchmark stock market index) and the yield on the UK 10-year bond.
The green line ins the FTSE 100. The orange line is the yield.
Notice something? When stocks are diving (a sign of diminished growth hopes), yields are falling. When the green line is rising, yields have generally risen too.
What everyone should hope that Cameron realises is that the yield is not some “credibility” measure. It’s about the market’s verdict on growth.
Bragging about low yields may be the worst humblebrag of all time.