The debt monster

Just after last year’s general election, George Osborne delivered a budget that he hailed as proof that his policies were working. ‘The British economy I report on today is fundamentally stronger than it was five years ago,’ he crowed, as he started to detail the record number of jobs created and a growth rate that had accelerated past our neighbours. ‘Our long-term economic plan is working. But the greatest mistake this country could make would be to think all our problems are solved.’

As it turns out, this final sentence summed things up the best. There was growth but a whole lot of debt as well. The national debt today stands at £1,580 billion, some 50 per cent more than the Chancellor inherited. He was correct that we were growing faster than our rivals, even if, given the dire state of their economies, that was not much of a claim. Osborne was right too that lots of new jobs had been created — but at the expense of salaries which remained stagnant. Also, half of the employment growth derived from Britain’s ability to suck in immigrant workers.

Whenever equities start to crash, wise old heads quote the Nobel Prize-winning economist Paul Samuelson, who said that the markets had predicted ‘nine out of the last five recessions’. Today there is certainly some truth in that. Markets overreact all the time, and swing from elation to despondency faster than a toddler over-doing it on fizzy drinks. Even so, it is sometimes forgotten that Samuelson was also making another important point: the markets are right slightly more than half the time.

Since the beginning of the year, the markets have been behaving as if there was another recession looming. The price of oil has been falling drastically — dropping from $65 a barrel last May to under $40 now.