This is going to hurt

There is much to be terrified about in today’s global economy. The eurozone’s death dance, China’s slowdown and America’s inability to create jobs are enough to make the most upbeat investors gloomy. But even these problems pale in comparison with the biggest threat, one with implications so hideous that financiers are reluctant to talk about it even now. The truth is that the economies of rich countries, including the UK, are being kept alive by another and astonishingly under-reported bull market — in government debt. This is the bond bubble; and when it bursts, as it surely will, the result will be a recession far deeper than the crash from which we are trying to recover.

This danger is ignored for a very understandable reason: government bonds are so boring that most people pay them no attention. Yet they fulfil a vital role, crucial to Britain’s nascent economic recovery. Bonds are, in effect, the IOU notes issued by debt-hungry governments.