The spectre haunting George Osborne

Rather more attention was paid last week to the strange position of George Osborne’s feet than to the dark shape lurking behind him. My own theory about his stance on the conference platform is that he was imagining himself as a operatic tenor, belting out an aria in praise the magic elixir he has administered to the formerly consumptive heroine, the UK economy, and pitching to be her next prince. But operas, like political careers, tend to end badly: so why the rumbling bass notes from the orchestra pit, and what is that sinister thing in the shadows?

I’m not talking about Corbyn and McDonnell fighting in a sack with their own colleagues: they’re a comic subplot. What I’m referring to in this overstretched metaphor is a chorus of gloom about the global economy, emanating most recently from the IMF meeting in Peru. We all know about the slowdown in China, and its effect on economies from which it buys raw materials. We’re less familiar with the perils of a huge build-up of debt in emerging markets, of which Bank of England governor Mark Carney, among others, warned in Lima.

Companies and state agencies in developing countries have taken advantage of low interest rates to pile on ‘over-borrowings’ estimated by the IMF at $3.3 trillion. Much of that is actually denominated in US dollars, which have been strengthening against a trade-weighted index of other currencies for the past 15 months, making the debt harder to service and repay. When domestic conditions oblige the US Fed to raise dollar interest rates, most likely early next year, a global shock could follow — and central bankers who feel quantitative easing has already passed safe limits are afraid that there will be no remedies left in the monetary medicine chest.