Last week David Cameron warned that the global economy risked “staring down the barrel”.

He was of course referring to the Greek crisis and the failure of European leaders to stabilise the Eurozone.

But he ignored the fact that it has been the collective rush by panicked governments, led by the UK, into misguided austerity measures which has had the effect of (at best) slowing growth and (at worst) pushing some economies back into double dip recession.

Given the latter, one has to conclude that, actually, it’s Cameron’s best mate George Osborne and other finance ministers who have their collective fingers on the trigger of the very gun whose barrel we’re staring down.

This ‘Dirty Harry’ (“go ahead, make my day”) economic strategy was meant to placate the bond markets in the UK’s case. Not surprisingly, it had the opposite impact on stock markets when the latter realised that the net effect was a flatlining economy and slumping consumer confidence.

As I’ve noted before, markets don’t like sovereign debt, but they dislike a lack of growth even more. And in urging European leaders to tackle “the high level of indebtedness in many Euro countries” Cameron basically argued for yet more austerity, a line echoed last weekend by George Osborne who said that Britain has been “ahead of the curve”.

The latter phrase tends to be bandied about by people keen to imply that they have ‘beaten the markets’ but that’s not what I sense from the markets. Rather, the markets are telling us – through rock bottom bond yields – to borrow to boost the economy.

Sadly, the Government isn’t listening to the markets and instead we now face a situation reminiscent of Japan in the early 1990s: a flatlining economy, zero or low interest rates, zombie banks, and an overly rapid fiscal retrenchment.

The net effect there was a wasted decade. I’m starting to wonder whether we’re midway through something similar in the UK today, especially when you consider that we haven’t even got back to where output was in 2008, and may not at this rate until 2014 at the earliest.

The most recent bout of stock market turbulence came in the wake of particularly disappointing manufacturing survey figures for China, and the failure of the US Fed’s latest intervention, ‘Operation Twist’. Instead of calming the markets, the Fed instead spooked them through its warning that the US economy faced “significant downside risks”.

Meanwhile the IMF told political leaders to wake up or face the recessionary consequences. Its recent World Economic Outlook was full of red alerts stressing a “dangerous new phase for the global economy” where downside risks had “increased sharply” and governments that tried to cut budget deficits too fast would “kill growth”. Take note, George Osborne.

And last weekend the IMF’s boss, Christine Lagarde, urged economic leaders to rekindle the collective endeavour of the 2009 London G20 conference, where leaders pledged to bail out the banks, avoid negative-sum protectionism and boost the resources of the IMF. They also reflated economies through expansionary fiscal policies.

So what’s to be done?

Firstly, the UK and other governments really do need to ease up on the speed of deficit reduction. What markets really fear now isn’t deficits but rather the acute lack of growth.

Its coalition Government argues that their plan is flexible in that “automatic stabilisers” can kick-in if growth weakens. This is a nonsensical argument. Stabilisers mean things like unemployment benefits paid out when people lose their jobs as the economy slows. Stabilisers offer a safety net but don’t stop the economy falling in the first place. Look at last month’s hike in unemployment figures.