Fruit

Are Britain and America turning Japanese?

Stocks around the world have fallen on continued fears about a global economic slowdown

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Global Economy

* End of the world as we know it?

* Europe's Wile E Coyote moment?

* Charting Europe's economic woes

* What turmoil means for you

The most worrying trend on markets in the past 24 hours has not been the collapse in share prices, but it has been the rise in the price of assets perceived by investors to be less risky: the sharp increase in the price of gold and in the prices of US, UK and German government bonds.

That's wonderful news if you happen to be stuffed to the gunnels with gold, gilts (UK government bonds) and treasuries (US government debt).

But for most of us, this isn't good news. When investors won't take risks, it is very hard for the economy to grow.

Here's the transmission mechanism between risk-aversion and recession.

As bond prices rise, the implicit cost of borrowing falls for the borrower that issues the bond.

So for the US government, according to Bank of England data, the price of borrowing for ten years is now at its lowest level for two centuries - and for the British government, the implicit interest rate it has to pay to borrow is lower than it has been since the end of the Victorian era.

Given how much debt is bearing down on the British and American governments, and the intractable nature of the country's respective deficits (the gap between what they spend and the revenue they take in from taxes), you would think the reduction in their costs to borrow would be a good thing.

And in one narrow sense, of course, it is.

Far better to be like the US and UK, trusted by investors and creditors, than to be like Italy and Spain, where government borrowing costs soared to levels that were almost unaffordable - and have only been staunched by the huge purchases of Spanish and Italian debt made in the past ten business days by...