In my email inbox:
The latest from Rehn… Hat-tip to Ambrose of the Torygraf: Ambrose:
While the tone is changing, there is no sign yet of a retreat from fiscal belt-tightening:
Given that average debt exceeds 90pc of GDP in the EU, I don’t think there’s any room for manoeuvre to leave the path of budgetary consolidation
said EU economics chief Olli Rehn.
“We won’t solve our growth problems by piling new debt on top of our old debt,” he said. Defying his critics, Mr Rehn said John Maynard Keynes himself would not be a Keynesian today’s circumstances.
Economists believe that the market will tell you when things are expensive. It is expensive to issue government debt when nobody wants to hold it--when the expected real interest rate on government debt is high. Right now the expected deal interest rate on the government debt of credit worthy sovereigns like Japan, Britain, Germany, and the U.S. is extraordinarily low.
If you want to argue that the current interest rates on 10-year and 30-year bonds are fake--that they do not reflect marginal social values--then make that argument.
DO NOT PRETEND THAT MARKET SIGNALS ARE FLASHING "RED" ON ADDITIONAL GOVERNMENT DEBT ISSUE OVER AND ABOVE WHAT IS FORECAST IN THE BASELINE! THEY ARE NOT!!!!
