Tuesday, 02 September 2014

If we own all this money

Posted in: Need to Know | Ask the Experts

21/10/2010 5:03 pm

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Anonymous

Anonymous

24/10/2010 7:11 pm

I think you should take some lessons in economics before you make anymore posts.

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Junior

Junior

Posts: 649

24/10/2010 11:12 pm

Always the Anonymous - I looking for a answer not one of the Anonymous people making remarks

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Sancho

Sancho

Posts: 226

25/10/2010 10:47 am

Junior,

The money is owned to literally millions of people.  Quite a lot of it (about £100bn) we owe ourselves.  Government borrowing is in two main strands; one is national savings such as Premium Bonds, where the people of a country are themselves lending money to the Government.  The other strand is in gilts issued to overseas investors and Governments. 

Owing money is not really a big deal for countries as long as they can servcie the debt.  For example, using any indicator, Japan owes a lot more money to a lot more people than the UK and is not considered to be in economic trouble. 

Just think of it like a mortgage and it should make sense.  Basically, the level of mortgage doesn't matter as long as you earn enough to pay it off.  The Labour approach was to try to keep everyone working to pay the mortgage off and to borrow more to make sure that it happened.  The Conservative approach is try and get rid of the mortgage by selling everything off and cutting as many costs as possible. 

Which approach is 'right' is a matter for debate and not something we will ever know.  There are natural cycles in the country's economy and people vote on the basis of where we are on that cycle when the election is held.  This time, the election came at a fairly low point in the economy so people voted Conservative thinking that the Labour approach was 'wrong'.  In all probability, things will still be quite bad at the next election and Labour will be hoping that they are bad enough for them to portray the Conservative approach as 'wrong'.  The Tories for their part will argue that the Labour approach was so wrong that they need to staty in longer to sort it out.

The short answer is that who we owe money to, and how much, is not really relevant.  It's a political red herring. 

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Sidney Webb

Sidney Webb

Location: South East England
Posts: 224

25/10/2010 12:28 pm

Thanks Sancho - I bet anonymous did not know any of that!

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Anonymous

Anonymous

25/10/2010 12:56 pm

I think anonymous is right to suggest a better understanding of economics would be pertinent before defaulting on national debt! Have a quick look at the Argentinian economy before suggesting that.

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Sancho

Sancho

Posts: 226

25/10/2010 1:28 pm

My point is that we are not even close to defaulting on our National Debt, hence it being fairly irrelevant at the moment. 

Most people look at the headline of national debt as % of GDP and chuck a figure of about 60% at it.  Labour's idea was to grow the GDP to get this percentage lower.  The Conservatives' it to reduce the debt.  They both work, but have different effects on real life people.

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Sidney Webb

Sidney Webb

Location: South East England
Posts: 224

25/10/2010 1:50 pm

Does anyone remember cries of 'edge of bankruptcy' 'we are all doomed' 'there's no money left' when the country owed 250% of GDP, dwarfing the current borrowing. Those Tory governments through the 1950's borrowed to that degree without any worries - Junior is right to raise the question, and Sancho is correct with the answers - anonymous seems to believe the spin!

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Anonymous

Anonymous

25/10/2010 2:20 pm

Whether we default or not isn't the relevant bit, it's the risk associated with a default and the potential downgrade of government debt from it's current AAA rating. If that happens it will increase the rate of interest on all money borrowed in stirling, meaning all companies operating in the UK will have to pay more than if they were to operate in a currency with AAA rating. This is highly likely to lead to any organisation that can leaving UK shores, with the resultant loss of jobs and corporation taxes.

No doubt lefties will tell us all this won't happen, saying it's all a conspiracy. A friend of mine works in a senior posistion for one of the ratings agencies and assures me this is a very real possibility. I know who'd I rather believe.

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Sancho

Sancho

Posts: 226

25/10/2010 2:33 pm

The fact that we have a triple A rating is a reflection of the risk of our defaulting.  i.e. not much.

I honestly don't care about this from a political point of view.  As I said, there are two ways of dealing with national debt and they both work.  It's quite possible, in fact, that the alternating between the two actually helps our economy by ensuring that we never borrow too much and never cut too much.  Moderation in all things...

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Sidney Webb

Sidney Webb

Location: South East England
Posts: 224

25/10/2010 3:49 pm

When did the UK last not have a triple A rating? What were the debt levels then? How does this relate to now?

As Nigel Lawson said 'the economy is no where near as fragile as when we [the Thatcher government of 1983 sic] made our massive cuts in services and spending'. The main man of conservative economic policy is clear that our economy is stronger now that 27 years ago - what does the anonymous friend say to his guru?

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Anonymous

Anonymous

25/10/2010 3:57 pm

I'd say that the "guru" - your word not mine - isn't the one deciding whether to downgrade the national debt. That's a decision based on a private company, not a government body. He can bang on all he likes, it won't change any decision on that front.

I'm afraid I don't know enough about rating choices to be able to compare the situation in 1983, but it wouldn't surprise me if debt was structured in a different way or different criteria were applied.

I'm not saying we should all rush out panicing into the streets, or do exactly as all the ratings agencies say to avoid at all costs a downgrade. I'm just trying to point out it's a lot more serious than a lot of people seem to realise, and it's a very real possiblity. I'd agree with Sancho about everything in moderation, it's just something else to take into account.

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Chris

Chris

Location: All over the place
Posts: 379

25/10/2010 9:03 pm

So are you implying Anonymous that if the debt was restructured differently then the circumstance and effect of that debt would change, potentially removing the urgency of spending being reduced?

Are you also implying that maybe Norman Lamont is a more reliable economist than Nigel Lawson?

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Anonymous

Anonymous

28/10/2010 9:31 am

No Christopher, I'm not implying anything of the sort. I'm saying I don't think defaulting on national debt is a good idea, and I don't think a lot of people understand the consequences of such an action.

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Sancho

Sancho

Posts: 226

28/10/2010 10:01 am

I notice that Standard and Poor's have just upgraded our creditrating in light of a growth in GDP.  Hey-ho.  Panic over until another election.

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Anonymous

Anonymous

28/10/2010 10:37 am

After downgrading it in January, while Labour were still in power and spending money hand over fist. Perhaps it's not about some grand consipiracy to change people's votes, more about economic prowess of the government in power.

Again, I'm not saying it's the ultimate concern, but a number of posters here seem to adopt the "I don't understand it so I'll ignore it and pretend it doesn't matter" principle. Happily I'd be quietly confident they're not in a position to make important financial decisions.

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Andy Wickham

Andy Wickham

Posts: 4

28/10/2010 10:58 am

Are these the same rating agencies that contributed to getting us in this mess by giving the banks toxic debt a triple A rating?

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Anonymous

Anonymous

28/10/2010 11:32 am

The very same Andy. And yet I'd still value their opinion on the risk of debt far above yours. Would you be of the opinion that any organisation that makes a mistake (albeit in your example a pretty massive one!) should be instantly disbanded and completely ignored?

I believe that's called "throwing the baby out with the bathwater".

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Andy Wickham

Andy Wickham

Posts: 4

28/10/2010 12:05 pm

No I say they were (and here's the irony) discredited.

So if you got financial advice from someone and it was bad advice you'd go back to them for more of the same? I wouldn't.

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Anonymous

Anonymous

28/10/2010 12:48 pm

Fair enough Andy - although I'd guess you (like me) aren't in the market for such advice.

It may interest you to know that Standard & Poor had a revenue in excess of $697 million in the last quarter. That's quite a lot to charge people for duff advice.

Perhaps you should put that economic mastermind of yours to good use and try and persuade some of their clients your opinions are worth more. Good luck if you try, I suspect you'll need it.

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Andy Wickham

Andy Wickham

Posts: 4

28/10/2010 3:19 pm

"Fair enough Andy - although I'd guess you (like me) aren't in the market for such advice."

Agreed with me

"It may interest you to know that Standard & Poor had a revenue in excess of $697 million in the last quarter. That's quite a lot to charge people for duff advice."

Patronised me.

Perhaps you should put that economic mastermind of yours to good use and try and persuade some of their clients your opinions are worth more. Good luck if you try, I suspect you'll need it.

Insulted me.

Your a politician aren't you? Come on you can't hide behind anonimity anymore tell us who you are?

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