Higher Inflation, Higher Deficit In Britain
The increasingly stagflationary nature of the British economy was confirmed today as consumer price inflation rose to 4.4% while the government deficit rose despite the austerity policy implemented .
Keynesians might use this as an argument that the austerity policy has failed, but the very high inflation rate is inconsistent with the assertion that insufficient aggregate demand is the problem.
Given the high level of inflation and government deficit, it is by the way a mystery how anyone would want to hold U.K. government bonds at the current pathetically low levels ( 3.60% for a 10-year security, even less for shorter maturities). Does these investors want to lose money to the U.K. government or have they simply become crazy?
Keynesians might use this as an argument that the austerity policy has failed, but the very high inflation rate is inconsistent with the assertion that insufficient aggregate demand is the problem.
Given the high level of inflation and government deficit, it is by the way a mystery how anyone would want to hold U.K. government bonds at the current pathetically low levels ( 3.60% for a 10-year security, even less for shorter maturities). Does these investors want to lose money to the U.K. government or have they simply become crazy?
posted by stefankarlsson at 3:41 PM
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