Supposing, for some curious reason, you are minded to lend some of your wealth to Gordon Brown and his successors for the next half century, you might think he would pay you a better rate of interest than if you let him keep the money only for a year or two.
Neither you nor he can possibly guess what sort of inflation will eat away at your capital over a half century.
But for the time being there is a fair chance that the Bank of England will keep near enough to his two per cent target. The longer the loan, the greater the risk and the greater reward. So you might think.
You would be monstrously wrong.
If you buy Mr Brown's longest-dated loan stock (called gilts), maturing in 2055, you will get a yield of just 3.59 per cent (before tax, that is), while there is a return of 4.22 per cent on an issue maturing later this year.
That is barmy, but it is so. It is a side-effect of the great pensions crisis.
A company with a hole in its pension fund, wants to know, with what can be dressed up as certainty, how big the hole is. Pension funds are encouraged to shift money out of shares, which are volatile, and into fixed interest bonds, led by gilts, which are boring.
It costs money because over the years shares do better than bonds. But if you want greater certainty, you can buy it.
That is such a powerful attraction that pension funds are piling money into gilts even faster than Mr Brown issues new ones to cover his m ountainous borrowing requirement. So the price of gilts has shot up - and since the interest on them is fixed, the yields came down, further in the long-term issues than the short because those are the ones the pension funds want.
Result: the certainties they are buying are certainties they can do without:
- The investment will turn out badly. Some time over the next 49 years inflation will top 3.9 per cent. The chances of the after-tax return on the gilt keeping up with prices - and pensions linked to them - over decades are next to nil.
- Worse, the low interest rates are digging an ever- deeper hole in the pension funds. As the yields get slimmer more and more capital is needed to buy the "certain" income required to pay future pensions.
- Finally, some day some-body will have a better idea. There will be a sell-off of these over-priced, under-yielding gilts and the pension funds that are buying them will lose billions they cannot afford.
Finding that better idea is something else. One way-out suggestion is pass a law banning all dividend payments for a one-off year and order companies to siphon the cash they save into their pension funds.
Insofar as pension funds are shareholders the dividend money would go round in a circle. For the rest - private individuals, insurance companies, charities, foreign investors - it would be out-right theft.
The only winner is Gordon Brown.
He can borrow more cheaply than any Chancellor since Hugh Dalton - he issued gilts at 21/2 per cent, then had to resign for leaking his own Budget.