Would it not be a very strange world if we were to find that our Moon was made of cheese? Well, the moon might not yet be made of cheese but our money has turned to chocolate, and not even the best chocolate at that.

In the financial markets it is always prudent to insure against the risk of a deal failing. With such large sums as millions and billions involved, it makes sense to spend thousands to cover any loss.

When governments want to fund their borrowing the loan is sold as bonds in the Gilt market. The purchasers, mostly international investors looking for a predictable and secure return – pension funds for instance – can and do insure against the possibility that the government selling the debt (taking the loan) defaults when repayment is due. This insurance cover is not just restricted to government borrowing but to corporate debt taken out by international companies.

Such is the concern in the international markets about the reliability and performance of Gordon Brown’s government that the cost of insuring against the UK government defaulting on its debt repayments has become higher than the cost of insuring against some of the best known international corporations – one of those being the British chocolate manufacturer Cadbury’s.

Last month the cost of insuring on a £10 billion five year government loan was £95,000 per year (last summer it was only £18,000) – while insuring on Cadbury’s for the same amount would cost £50,000 per year. The absurd reality is that as far as the market sees it, the UK Treasury’s money is now worth less than Cadbury’s. We might as well have chocolate coins rather than the real thing.

The market is not some monolithic institution that thinks by itself with one mind, it is the result of spontaneous decisions by an almost infinite number of analysts, investors, buyers and sellers. As can be seen by the rise in the cost of risk, the market mood has become far, far more pessimistic about the Government’s ability to ride the storm that it took us into.

Why is this? The government is losing the confidence of the majority of people making investment decisions in the markets, often on our behalf. There comes a tipping point, not yet reached, when the flow of statistics leaves government ministers completely naked, with nothing left to cover them. No sooner had Alastair Darling sat down after putting a brave optimistic face on the nation’s ability to recover when his own Office of National Statistics published information that said matters were far worse. This is why the markets are turning against the government.

And it’s getting worse. Standard and Poors’ decision to change its outlook for the UK last week from stable to negative and its professed willingness to change the UK’s AAA rating to only an AA has been echoed by the IMF giving similar warnings about the UK’s indebtedness. The effect of losing a triple A rating would be serious as many investment managers are told by their client only to invest in countries with such a safe rating. There would be an immediate flight of capital from the UK, hitting investment and making government borrowing riskier and therefore more costly. This would feed through into higher taxes. The aforementioned gilt markets would also have their confidence sapped. Such an outcome would require the International Monetary Fund to bail the country out – it happened in Hungary only a few months ago.

Alastair darling may be right of course. We may bounce back in a manner that has not been seen before. If he’s wrong, however, it looks very bad indeed. Darling says the ratio of government debt to the country’s gross domestic product will reach seventy-six per cent by 2013, but that’s based upon his optimistic forecasting. Some forecasters are putting the debt ratio to go over 100 per cent.

Recently, in a commons committee, one of the Chancellor’s chief advisors said one of their assumptions that they based a quick economic recovery on was that the re-introduction of the old VAT rate in December would spur consumers to buy before the tax rate goes up. How daft is that? Desperate for business, I predict retailers will swallow the meager 2.5% tax hike in an effort to win a customer’s sale – consumers will therefore have no greater incentive to spend than now – and anyway, they may have decided that consumption for the sake of it is ruinous. They might just want to save instead!

If this is the quality of the advice the Chancellor is taking I fear even more for our future. This is what the market appears to be thinking too.

We truly are living in an unreal world, like some Lewis Carroll work of nonsense where chocolate buttons are the coinage. We can now only pray Captain Brown’s not taken us to sea in a sieve.

Brian Monteith is policy director of ThinkScotland.org