[Archived] call me thick :P

[ABBEY]

Not starting a political thread,but could someone help thickos like me.

This national debt,who do we owe it to ? banks? ourselves?. I keep hearing about interest owed and billions owed but I have never understood who is owed the money .

am i being thick or what.

[broadsword]

as far as i know, it is trhe difference between the government's spending and its income.

If the govt spends (for example, by nationalising banks) more than it earns (tax income) then the difference isn't technically owed to anyone, because its the government that prints money.

However, a large national debt is a sign of an economy in trouble, because it cannot meet its spending obligations with the physical money it has coming in. That leads to a weak currency.

[BiggusLaddus]

You are confusing debt with deficit Bryan.

We owe money anyone who has bought government bonds or lent money to us in other ways. Usually banks.

Having a large national debt comes from running a budget deficit for years and needing to borrow money to make up the short fall.

Big debt is not a problem as long as you can afford it. At the min our interest repayments are more than we spend on education and defence (combined I think, or will be soon).

[Redrose49er]

Not starting a political thread,but could someone help thickos like me.

This national debt,who do we owe it to ? banks? ourselves?. I keep hearing about interest owed and billions owed but I have never understood who is owed the money .

am i being thick or what.

Basically the government sells bonds to the global financial markets. Bonds are basically guaranteed loans to the government at a fixed rate of interest. For instance, it could be a 10 year bond at 5% interest, sometimes they are known as gilts. The people the government borrow off are essentially ourselves; we pay insurance premiums, pension contributions etc, these insurance/finance/pension/investment companies collect vast amounts of revenue (£billions) and invest it to make money, some goes on the stock market, some goes on government bonds.

The government doesn't simply print more money, that would be inflationary. The recent £200bn Quantitative Easing by the Bank of England bought these government bonds back, credited the companies and basically created electronic money to encourage further lending by banks (or to pay huge bonuses to those who contributed to the problems!)

During 2010/11 the UK paid about £44bn in interest, roughly £900m per week. This is paid on the accrued deficits of recent years when government spending has been far higher than income.

[cletus]

It took around 40years for the UK to re-pay its loans to the USA that bankrolled our WW2 effort.

If i remember right, i think it was the late 80s when we were straight with the yanks.

Now, the previous labour government started borrowing from everybody again to finance their 'vision of the future'. This wasn`t good, but was managable until the world economy collapsed a few years ago.

Now we`re in the doo-doo again

*btw....the clearing of the WW2 debt in the late 80s wasn`t a Tory masterstroke either. A lot of it came down to the mere luck of finding oil in the North Sea in the 70s. By the mid 80s, the oil boom was paying off BIG TIME.

Now, the industrial revolution was moved onto asia. Britain doesn`t make much these days (apart from munitions) One of our main incomes is from banking & stocks.....so effectively we are surviving on managing other peoples money.

We now import our coal, oil & gas.

Most of our industry is owned by foreign companies.

We don`t build ships any more (for an island, that is bad!!)

How the hell did we get ourselves into this situation???

[jim mk2]

It took around 40years for the UK to re-pay its loans to the USA that bankrolled our WW2 effort.

If i remember right, i think it was the late 80s when we were straight with the yanks.

Gordon Brown paid off the US war debt in 2006 in the final settlement of a £1 billion loan taken out in 1945 and worth more than £50 billion today. It should have been repaid by 1999 but governments deferred annual payments six times, mostly in the hard-up 1970s.

[cletus]

Gordon Brown paid off the US war debt in 2006 in the final settlement of a £1 billion loan taken out in 1945 and worth more than £50 billion today. It should have been repaid by 1999 but governments deferred annual payments six times, mostly in the hard-up 1970s.

I stand corrected Jim

Amazing that it took 60yrs to pay off WW2 loans.

[jim mk2]

I stand corrected Jim

Amazing that it took 60yrs to pay off WW2 loans.

Big debate among historians about the US contribution to the second world war - why the Americans refused to enter the war until Pearl Harbour and the penal loans which were forced on Britain to pay for our war effort. Britain of course still had an empire then and we were a major industrial rival to the US - there is a school of thought that the US saw the chance to weaken Britain in the long term. In view of events in Britain since 1945 that view is probably correct.

[ABBEY]

Its all gone whoooooooosh

[BiggusLaddus]

Way off topic, but:

The US had no reason to enter the war militarily until they were attacked but had been providing us with substantial amounts of sea trade before that point. In reality the empire had been crumbling since the first war and was costing us an awful lot of money to administer. There is a theory that this may be down to the huge numbers of junior army officers killed in the trenches (i.e. young ex-public school boys who would traditionally have gone overseas to take up administrative roles in the colonies).

But yes, colonial empires where seen as distasteful at that time, particularly by newly emerging superpowers who could do without the competition.

BTW, there is another theory that we had full knowledge of Japan's intention to attack Pearl Harbour and kept it to ourselves as we knew it would force the US to fully enter the war.

IMO had the US not entered the war in europe at all then the navy and RAF would have continued to hold the Germans at bay until either Hitler finished developing the hydrogen bomb (immeadiate game over), or the war had continued for an extra few years and we'd probably now be speaking Russian.

[BiggusLaddus]

Its all gone whoooooooosh

To answer your original question, just read Roserose49er's post.

The government offers bonds or gilts for sale with a garuntee to pay back a certain level of interest. These are bought by investment banks, private pension funds and lots of others. It is a real debt that the country should repay.

If we decided to say "no too skint this year, you lot can swivel" then our credit rating would plummet and any future borrowings would cost us an absolute fortune. As we are currently spending about £160bn per year more than the total tax take, we can't default as we need to borrow that extra £160bn again this year, next year and every year until we start breaking even.

[ABBEY]

What would happen if EVERY country or just one said f it and said we aint paying and the debts set to zero?

[broadsword]

I would guess that their currency would plummet in value on the international markets because they wouldn't be seen as a good financial bet.

With an extremely weak currency, the cost of imports would sky-rocket.

I'm sure there's plenty of negative implications, but essentially it's a total no-no, Zimbabwe style.

[Redrose49er]

What would happen if EVERY country or just one said f it and said we aint paying and the debts set to zero?

If the UK was to default upon the debt it has built up we would see financial meltdown. Remember, the debt is mainly owed to various businesses that provide us with insurance, pensions and other financial services, basically this system would collapse as would the banking system. The £ would crumble as confidence in the UK economy would disappear, the cost of imports would rocket and as a net importer of oil this would lead to a horrific recession. Exports would get cheaper but the overall impact upon the economy would be devastating. Managable government debt is fine if used for the right things, investing in social capital such as hospitals/schools/transport etc, sadly the UK debt has spiralled out of control in recent years. Greece, Portugal, Ireland and Spain (the so-called PIGS of the Eurozone) are all close to defaulting upon debt and need serious bail outs by the EU, gladly the UK is mainly on the outside looking in on this, Germany is picking up the bill. There are thoughts that the USA is close to seeing its debt rating down graded, this would dramatically increase interest payments, leading to huge spending cuts and tax rises and no doubt a new president, unless he hangs on and then implements the cuts - as Clinton said "it's the economy, stupid".

[ABBEY]

Gotchya ( i think ~) what would happen if EVERY country said stuff the debts?

[Redrose49er]

Gotchya ( i think ~) what would happen if EVERY country said stuff the debts?

Complete global economic meltdown, probably leading to nuclear annihilation.

[ABBEY]

Plan

[BiggusLaddus]

Not enough V8's in this country to make a nuclear apocalypse worthwhile.

[joey_big_nose]

Big debate among historians about the US contribution to the second world war - why the Americans refused to enter the war until Pearl Harbour and the penal loans which were forced on Britain to pay for our war effort. Britain of course still had an empire then and we were a major industrial rival to the US - there is a school of thought that the US saw the chance to weaken Britain in the long term. In view of events in Britain since 1945 that view is probably correct.

I don't think it is as Machiavellian as that. A large proportion of people in America were anti-intervention as they didn't see the point of loads of Americans dying for what was perceived as a 'European' conflict. This was prior to all the bits and pieces coming through about the holocaust etc, and there was a decent amount of sympathy for Hitler in some quarters.

Roosevelt was very pro intervention but he couldn't sell it to the people until after Pearl Harbour.

As for the notion that America was motivated to cripple competitors in the international market, if this idea has any credibility in it (which I don't think it has) they did a remarkably rubbish job of it. American money rebuilt the Western European and Japanese economies, which subsequently demolished a large proportion of the US auto and high tech industry in the open market in the 1970s through better technology and better business practice.