If you watch or read the news and believe the nonsense that is being peddled about the risk of inflation and the amount of debt the government is borrowing, you could be forgiven if you are starting to panic.

But you shouldn’t.

Because that’s what it is – nonsense.

Here is what is really happening and why.

Inflation is at record low levels; despite government borrowing having increased, inflation has not risen. Indeed more borrowing may be necessary to deliver inflation (and moderate inflation is a good thing).

Government borrowing is currently at negative interest rates. This means exactly what is says. Lenders will get back less than they have loaned to the government. Last week the government issued £3.8bn of five year bonds at a negative interest rate. Rather than earning interest the lender will get back £3.6bn (or thereabouts) and no interest.

This may sound stupid; why would they if they can just leave the money in the bank? The reason is that banks can go bust whereas the government can’t. The £85,000 financial guarantee of money lent to banks is of no use if, like pension funds and insurance companies, you have billions to place somewhere.

Plus foreign governments and sovereign funds want to lend us money for nothing in return (effectively paying the UK government to look after it for them) because they know it is safer here than elsewhere.

“But”, say the nonsense- peddlers, “how will we repay it? Haven’t thought of that, have you?”

Well yes, actually. We won’t, at least not in aggregate. We never have in the past (since 1694 when the government first started borrowing) because we can always borrow new debt to repay the old.

“But isn’t having too much debt a bad thing?”

Probably yes is you are a business or household and have to ‘balance your books’, but not if you are a country that can create money when it needs to. Remember the money-tree in the Bank of England garden.

And while we are on the subject of balancing the books, consider this. For every borrower there must be a lender – correct? And there are only 3 types of entity in the equation: the public sector (government), the private sector and the foreign sector. Right now there are lots of willing lenders in the latter two categories that are more than happy to lend and for the UK government to borrow.

The media and politicians (and even some economists) call the amount we borrow ‘the deficit’ as though it’s a bad thing that’s going to come in the night and steal your children and must be avoided at all costs.

When in fact it is just the opposite.

There may be plenty of things to worry about as a result of the Covid-19 pandemic, but the level of national debt is not one of them.

Stay safe.

Noel Guilford