Yes, it would be nice to have higher interest rates, but the reason we don’t have high interest rates is because the Bank Of England is applying stimulation, and the reason the Bank Of England is applying stimulation is that 1) the economy needs it and 2) the government isn’t.

Low interest rates basically mean high private borrowing. If the government wants higher interest rates, they will have to replace that with public borrowing or see unemployment rocket upwards.

Low interest rates are unsustainable in the long term because they transfer wealth from wealth creators to rent seekers via inflated asset prices. We also have very high levels of private debt now, so letting this continue indefinitely is unwise.

The government starting to borrow and investing in infrastructure is probably the best bet, but the deficit is already very high so it’s not risk free economically, and politically, given that they’ve based for the last 6 years their entire credibility on their reluctance to spend money, it would look a bit like they don’t know what they’re doing. Having said that, I doubt Labour under Corbyn will capitalise on that.

The third option, to raise rates and do nothing else, is clearly silly because the economy is lethargic even with low rates.

There is no winning move here. Cameron and Osborne left a timebomb.


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