The Financial Times Tells Us To Listen to The Bond Market and Borrow at Low Rates

Martin Wolf tells us that we should be listening to the bond market in this Financial Times article. The ten year bonds in the US and Germany are yielding under 2%. Even the UK can borrow for 2.5%. The problem that we have is not the risk of default in these markets. It is the problem of unemployment, and there is room in fiscal policy and in monetary policy to stimulate economies that are expected to grow at less than 2% for the next two years. Governments must be able to find investments that can produce a return that exceeds the cost of borrowing.

Deficits are a problem, of course, but they are fueled by unemployment, and falling tax revenues, as well as by government spending. The duration of unemployment is also a problem. Long term unemployment contributes to the loss of job skills, and it increases the likelihood of unemployability.