Almost everything has some kind of historical precedent. Look quickly at where our economies are today and you might think you see nothing new. After all, countries have been in debt before. Empires have destroyed themselves with money printing before. Bond yields have been low for decades before. And currency unions have collapsed before. But look a little closer and you will see that a good deal of what is happening in the global economy really is unprecedented.
Take interest rates. The UK base rate remains at its lowest level since usable records began in 1694. Then bond yields. A report from Deutsche Bank notes that they are at all-time lows all over the place. In Holland, ten-year yields hit their lowest levels in 495 years back in June.
And short-term yields? These days they are often negative: people are prepared to invest in them even in the certain knowledge that they will make a negative return in both nominal and real (inflation-adjusted) terms.
Then there is the money printing. Yes, it has been done before. But as far as I know, never before has most of the world done it at the same time, nor at a time in which the sovereign right to print money has been devolved to unelected central bank officials.
Right now Japan, America, Britain and Europe, all keen to do “whatever it takes” and all mildly clueless about what that might be, are printing simultaneously. That’s definitely new.
Finally, there are the deficits. According to Deutsche Bank, America has been running a budget deficit (spending more than it takes in tax on an annual basis) for 40 of the last 44 years; Britain for 51 of the last 60 years; and Spain for 45 of the last 49 years.
Pretty much everyone now has long-term and persistent deficits, and economic policy no longer appears to recognise this as odd. Instead, it is a constant of life – to be managed rather than eliminated.
This brings us to John Maynard Keynes and the way we are constantly told that his theories would suggest we should raise more debt and spend more to get out of our various recessions. The fact is that they don’t. Instead, as Guy Fraser-Sampson points out in his new book, The Mess We’re In, Keynes’s views have very little relevance today for the simple reason that his core assumption was that governments would enter a crisis with a balanced budget – which this time round we most certainly didn’t.
This isn’t something that governments desperate to be re-elected particularly want to hear. They’d rather go with the version of Keynesianism promoted by those who haven’t quite got around to reading Keynes – that government spending is always good. That means as investors we might, at least, expect a rise in infrastructure spending in Britain over the next few years. How to invest as a result? You will find some of the answers in our Roundtable.