Offering another drink to an alcoholic because he promises to sober up next year is not necessarily a kind thing to do.
Offering too many loans to a debtaholic just puts off the day when he has to start paying it all back, and makes that task more difficult.
One of the ideas behind quantitative easing was to get the interest rates down that the government has to pay, to take some of the pain out of being addicted to debt. So how are they getting on?
Over the last month the interest payable by the government for borrowing one year money has risen by 31 basis points (up to 1.06%), on five year money has risen by 42 basis points (up to 2.61%), on ten year money gone up by 10 basis points (to 3.45%) and on 39 year money by 20 basis points (to 4.33%). Quantitative easing is not working in one of the ways intended.
Indeed it is now dearer for the government to borrow long term money than it was a year ago before all the interest rate cuts, showing that markets now fear inflation a bit more and will make the government and taxpayers pay more for it.
Of course the main strategy to avoid a debt crisis is still in place. The banks are going to be made to buy loads more gilts in the name of “Prudence”! This will enable the government to be less prudent. It now appears that despite all the printing, it will be against the background of dearer money. The failed gilt auction was a fixed income bond. The next successful one was an inflation linked bond, which went a lot better. The markets don’t buy the deflation scenario. They are rightly worried about excessive debt and persistent inflation in food and public sector prices.