Is George Osborne being an idiot or propagandist?

George Osborne is planning to take advantage of Britain’s historically-low interest rates by issuing so-called ‘super bonds’, which will not be repaid for 100 years or more…

A Treasury source said: “This is about locking in for the future the tangible benefits of the safe haven status we have today.

“The prize is lower debt interest payments for taxpayers for decades to come. It is a chance for our great-grandchildren to pay less than they could otherwise have expected to because of this Government’s fiscal credibility.”

Long-term debt will not lock in low interest rates for 100 years. Long-term interest rates will be determined by the expected future path of short-term interest rates plus a risk premium. Nobody will lock in any sort of free gift for current or future taxpayers because people are not mugs.

We know nothing about how productivity, geopolitics etc will shape up over the next 100 years (compare 1845 to 1945 or 1912 to 2012!), so I don’t really see how Osborne can honestly expect a meaningful change in funding costs from issuing such long bonds. This makes me think he is doing this as a propoganda tool

Look how extreme the situation is. Look at the crazy things we have to do!

I’m not sure government funding choices are the best outlook for propaganda exercises but there you go, Osborne’s always been a canny political operator.

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4 thoughts on “Is George Osborne being an idiot or propagandist?

  1. It will ‘lock in’ current expectations on interest rates and if those turn out to be too optimistic (as in too low) then it will have been a good deal. There also might be some advantage if buyers are willing to pay more for 100yr bonds.

    But yes, it’s mainly a good deal for you if it turns out to be a bad deal for the buyers. And to see the BBC simply repeat the claim it will save £20bn without any analysis (what about the lower tax receipts – this was the mistake the Guardian made over the Autumn Statement) was appalling.

  2. Though, the 30 year bond rates are currently at an extremely low 3.33% (and you couldn’t sell a 10 year bond at less than 5% for most of the last half of the 20th century)

    Even 30 years is enough time for several major economic shifts…

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