The International Monetary Fund continues to nag away at George Osborne.

Set aside economic voodoo and the idea seems to be that the Chancellor has turned the job of fixing the economy into a fine, hand-stitched pig's ear. Specifically, he has made a porcine accessory out of public investment.

The IMF, as has been said more than once, is not the Red Guard of global finance. In Washington, where the organisation is based, they do not build socialist utopias, or spare many thoughts for the victims of public spending cuts. They can count.

Having visited Britain recently to gather facts, an IMF delegation did their sums. The conclusion was that Mr Osborne should think twice about another round of cuts. Instead, David Lipton, the fund's first deputy managing director, advised it would be "useful for the economy for some infrastructure and other measures to be brought towards the present". The Chancellor ignored all that rot.

Instead, he could be found yesterday boasting that seven Government departments have agreed to further cuts. Mr Osborne has secured, so he says, 20% of the £11.5 billion he means to "save" after 2015. Meanwhile, Iain Duncan Smith has stepped forward with an offer to cut another £3bn from social security if that will spare defence and the police.

It's an interesting wheeze. Mr Osborne tells the BBC if he gets his "necessary savings" there should be no need for tax increases, or for another attack on welfare. Mr Duncan Smith, in contrast, tells a Tory paper he can "restrict" housing benefit for those under 25 and "limit" state help to families with more than two children.

The Minister has four children, lives in a house on his father-in-law's estate, and made his pile through after-dinner speaking. But let's not be petty. Cuts or no cuts? The LibDems are opposed to a reduction in working-age benefits, but might go along if cuts are made elsewhere. The winter fuel allowance for pensioners is their heart-warming favourite.

The point, as even the IMF has grasped, is simple: this is the only thing the Coalition understand. They have grasped that Britain has big debts (true) and a hellish budget deficit (also true). But ministers conflate one with the other, banking on the public's inability to tell the difference. They cut the deficit while pretending to cut the debt. Then they blame everything on us, or on Labour. Dishonest is the polite word.

The budget deficit, the difference between what comes in and what goes out, is falling: grant them that. The shortfall was £161bn in 2009 and £98bn last year. Yet debt goes on rising. As of the end of last year, Britain owed £1.387 trillion, up 7% in 12 months. The entire economy was worth £1.541trn. In January, nevertheless, David Cameron used a Tory broadcast to claim that despite "difficult decisions, we are making progress. We're paying down Britain's debts".

There's a word for that. In the familiar quotation it falls between "damned" and "statistics". All the cuts and all the suffering are having no effect on a debt equivalent to 90% of GDP. Mr Cameron and Mr Osborne know it. In fact, they are content to allow debt to rise. Meanwhile, the reflexive instinct for cuts chokes the life from the real economy.

Still, everyone knows what Labour got up to, don't they? And it's a fact, surely, that we all gorged on debt when credit was cheap? The semantic difference between a half truth and an outright lie is fascinating, but it does Coalition ministers no credit.

In 2006, the UK's gross debt was 43.3% of GDP, or £577bn. By international standards, that was a decent performance. Labour left office in the spring of 2010. Fully three years later, debt has risen to 90% of GDP and is still rising. Three years of Mr Osborne's sovereign remedy has created just the faint echo of a sigh of relief because a triple-dip recession was avoided.

But what about the rest of us, with our daft mortgages and plastic to burn? That's an interesting detail. As it turns out, Britain's households have done a better job of managing debt than Mr Osborne.

Remember, first, that while the public were irresponsible – with every encouragement from banks and politicians – there was no sub-prime housing crisis, no mass defaulting on loans, no negative equity problem, no credit card meltdown. Spending was out of hand but, collectively, we were managing. While services are slaughtered and the young are condemned to mass unemployment we are still, just about, managing.

Whatever Mr Cameron and Mr Osborne like to say, it was not our problem. Household debt was 69% of GDP in 1997. It reached 100% in 2006 and a horrible 110% in 2009. But it has since fallen to 99%. That's bad enough, but it is proof that the profligate public has paid down debt in a manner that seems to be beyond Mr Osborne.

The banks have been a little less impressive. Their liabilities doubled as a percentage of GDP between 1997 and 2007 while Labour looked the other way. Their debt hit 500% of GDP before anyone noticed a crisis looming. In early 2010, the figure was 586%. Now, despite the cheap money handed out through quantitative easing – money loaned back to the state at inflated rates for "public finance" scams – banking's liabilities are still 500% of Britain's GDP. The cash figure is around £6.7trn.

Meanwhile, Mr Osborne cuts spending and keeps borrowing. With no real growth in the economy, he can't hope to resolve the contradiction. With consumer spending "flat" as we pay down our own debts (if we can) and the banks rebuilding balance sheets with the Bank of England's cheap money, he takes the last player, the state, out of the game. And he's pleased with himself.

The banks and their £6.7trn are a herd of elephants in the room. Just because Mr Osborne makes stupid noises about putting RBS on the block, a trusting public concludes that things must be perking up. Britain's banks have a massive European "exposure" when the eurozone is in trouble, capital adequacy requirements have been tightened, and some demented Tories are fixated on their great escape from the European Union. Happy days.

Mr Osborne is cutting because Conservatives confuse the act with virtue, even when they have three years' worth of evidence to contradict the superstition. They dislike the public realm because the people who exist there are people they hold in contempt. So the Chancellor's trivial contribution to infrastructure is a new version of off-the-books PFI with more schemes than even Gordon Brown contemplated.

The banks and pension funds are in no rush to invest. They believe they can shake more money from the public purse while the state bank prints up cash and Mr Duncan Smith decides how many children are decent for the likes of you.

By way of a PS, the Americans have just made it known that they won't be rewriting a proposed EU trade deal if Britain leaves the Union. In Washington, in the White House and at the IMF, they regard our Coalition Government as weird. It's useful to know.