The shock of the new

When it comes to the financial crisis, you would be forgiven for thinking we've seen it all before. But take a closer look, says Merryn Somerset Webb, and you'll see these are unprecedented times.

Almost everything has some kind of historical precedent. Look quickly at where our economies are today and you might think you see nothing new. After all, countries have been in debt before. Empires have destroyed themselves with money printing before. Bond yields have been low for decades before. And currency unions have collapsed before. But look a little closer and you will see that a good deal of what is happening in the global economy really is unprecedented.

Take interest rates. The UK base rate remains at its lowest level since usable records began in 1694. Then bond yields. A report from Deutsche Bank notes that they are at all-time lows all over the place. In Holland, ten-year yields hit their lowest levels in 495 years back in June.

And short-term yields? These days they are often negative: people are prepared to invest in them even in the certain knowledge that they will make a negative return in both nominal and real (inflation-adjusted) terms.

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Then there is the money printing. Yes, it has been done before. But as far as I know, never before has most of the world done it at the same time, nor at a time in which the sovereign right to print money has been devolved to unelected central bank officials.

Right now Japan, America, Britain and Europe, all keen to do "whatever it takes" and all mildly clueless about what that might be, are printing simultaneously. That's definitely new.

Finally, there are the deficits. According to Deutsche Bank, America has been running a budget deficit (spending more than it takes in tax on an annual basis) for 40 of the last 44 years; Britain for 51 of the last 60 years; and Spain for 45 of the last 49 years.

Pretty much everyone now has long-term and persistent deficits, and economic policy no longer appears to recognise this as odd. Instead, it is a constant of life to be managed rather than eliminated.

This brings us to John Maynard Keynes and the way we are constantly told that his theories would suggest we should raise more debt and spend more to get out of our various recessions. The fact is that they don't. Instead, as Guy Fraser-Sampson points out in his new book, The Mess We're In, Keynes's views have very little relevance today for the simple reason that his core assumption was that governments would enter a crisis with a balanced budget which this time round we most certainly didn't.

This isn't something that governments desperate to be re-elected particularly want to hear. They'd rather go with the version of Keynesianism promoted by those who haven't quite got around to reading Keynes that government spending is always good. That means as investors we might, at least, expect a rise in infrastructure spending in Britain over the next few years. How to invest as a result? You will find some of theanswers in our Roundtable.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.