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Home Publications Blogs Beat the Press The Washington Post Confuses Economic Recovery with Fears of Insolvency

The Washington Post Confuses Economic Recovery with Fears of Insolvency

Wednesday, 20 April 2011 08:09

The Washington Post told readers that when interest rates on UK debt rose from 3.0 percent in 2009 to 4.2 percent:

"It was a sign that the country’s creditors were beginning to get nervous that the nation’s debt was becoming unsustainable."

It doesn't tell readers how it made this determination. The more obvious explanation is that the UK economy had come out of the free fall that it and other major economies were in. During this free fall UK government bonds were one of the few trusted assets, which meant that they paid extraordinarily low interest rates.

A 4.2 percent interest rate, which is less than 2.0 percent in real terms, is still extremely low by any historical standard. For example, the real interest rate on U.S. government debt was 2-3 percent in the late 90s when the government was running budget surpluses. Lenders usually demand far higher interest rates on assets to which they attach considerable risk.

It would have been worth mentioning in this article (which explores the lessons that the UK holds for the U.S.) that hundreds of thousands of workers in the UK are currently unemployed so that the country could maintain its top credit rating.

Comments (4)Add Comment
written by izzatzo, April 20, 2011 10:57
The Washington Post Confuses Economic Recovery with Fears of Insolvency

Ridiculous. WaPo is no more confused about this than it was during the financial crisis confusing illiquidity with insolvency.
UK Creditors SHOULD Be Nervous
written by paul, April 20, 2011 11:15
The UK has been a deadbeat for decades: "In 1934, Britain owed the US $4.4bn of World War I debt (about £866m at 1934 exchange rates). Adjusted by the Retail Price Index, a typical measure of inflation, £866m would equate to £40bn now, and if adjusted by the growth of GDP, to about £225bn.
"We just sort of gave up around 1932 when the interwar economy was in turmoil, currencies were collapsing," says Prof Harrison." http://news.bbc.co.uk/2/hi/uk_...757181.stm

The U.S. on the other hand, has never defaulted on its debt. But maybe we will now that the RepubliCons control Congress.
written by Sherparick, April 20, 2011 12:39
Its not confusion, its just advancing a chosen narrative to get the policy result that the libertarian kids and grandkids of Catherine Graham want to achieve, the end of Medicare and Social Security. Although there may some stupidity involved since the Post seems to have no understanding of the Current Account deficit.
written by Sherparick, April 20, 2011 12:43
I also note that headline CPI in the U.K. is around 5% right now, so these interest rates are actually "negative" in that they are below inflation. I also expect a "surprise" that the 1st quarter was negative for the U.K. economy (it should not be a surprise since all the number in retail sales indicate this, but since this fact does not fit the meme of the day, "prosperity and solvency through austerity (for poor people)" it is not being anticipated.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.