Hamish McRae: Let's hope for an end to this investor uncertainty

One aspect of the Japanese condition that does seem to have come to Europe is falling consumer prices. German prices are down 0.5% year on year, and it looks as though the UK may dip into a period of falling prices this summer. But that is largely the result of the one-off plunge in the oil price.

Factor that out and prices would be rising, even in Europe, by a bit below 1% a year. Meanwhile, in Britain and the US this underlying inflation is somewhere around 1.5%. (US headline inflation is 0.8%.)

Once the impact of the fall in the oil price moves through the economic system, which will take about a year, inflation will start to climb again.

In any case, there are other elements of the Japan story that really don’t apply in Britain or America. We both have a rising population. We have both had a recovery in property prices, arguably a bit too much of a recovery here.

US shares are at record levels, while UK ones have experienced nothing like the collapse that took place in Japan. True, there are closer parallels in parts of Europe, but not that close. No country in Europe, not even Greece, has public debt of more than double GDP.

If the “we are all becoming like Japan” argument does not wash, what other explanations could there be? Financial repression is an important one.

This ugly expression means governments nudging, forcing or bullying people to lend them money at artificially low rates because they have borrowed too much in the past and need to cut their financing costs.

There are a variety of ways they do this, one being to require banks, pension funds and other financial institutions to hold government debt for “prudential” reasons. Forcing pensioners to buy annuities (which are invested in government stock) is a classic ruse.

Quantitative easing is an element of this. By flooding money into the system, interest rates are reduced below the level they would otherwise be. Borrowers benefit, or at least they should if they can borrow at these low rates, and savers suffer.

The perfectly reasonable excuse is that the greater good QE brings to the economy as a whole, in the form of higher asset prices and greater growth, more than offsets the disadvantages it brings to savers and the increase in inequality it creates from, for example, higher house prices.

There is a more nebulous explanation: fear. These ultra-easy monetary policies have managed to create some growth in the US, and more recently in Britain.

The European Central Bank is beginning its own programme and we will see how that works, or doesn’t, when it gets going later this year. Japan began QE last year but it is too early to judge its impact.

However, investors are frightened of these policies. They know they have to come to an end. They know interest rates eventually have to rise. They are aware that Bank of England Governor Mark Carney, among others, has voiced concern that as things get back to some sort of normal, this will put pressure on some financial institutions, some companies and indeed some people.

So what do you do in this world of uncertainty? You do at least know that you won't lose too much money.

The German government will pay you back, and if other weaker eurozone governments can’t, then hey, the European Central Bank will probably stump up somehow — well, maybe not for Greece.

British and American governments will certainly pay because they have control over their own currencies and compliant central banks.

I find this fear both troubling and unreasonable. It is troubling for obvious reasons: it shows a lack of trust and a dearth of hope. But it is surely unreasonable because the world economy is growing, and that growth is gradually feeding through to improve living standards in most of the developed world, and — importantly — most of the emerging world too.

Savings should go into real investment projects that improve the human condition, not just be shovelled into government debt.

So let’s hope the markets are wrong, as they have so often been in the past, and this plunge in long-term bond yields is an aberration, soon to be reversed.