January 21, 2011

The National Debt: Who Do We Owe?

The last time this subject got an outing was when Britain's debt tipped over £1 trillion. (Although many believe the figure to be closer to £4 trillion).

In the comments several people asked "But who do we owe all this money to?"

The answer is right here.

Number crunchers of note may be miffed at the simplified explanation but I appreciated it.


"If government spending outstrips tax revenues, it has to borrow the rest. It does this by issuing gilts, which are just IOUs from the UK.

Investors — from banks and pension funds to foreign governments — buy the gilts. In doing so, they agree to lend the UK a specific amount of money over a specific period of time, at a specific interest rate.

The national debt — that £1trillion figure — is all these added together. It's how much we owe in total.

So when the government says it plans to cut the deficit from around £150billion last year to £35billion by 2014/15, all it means is that it's going to reduce the amount that it overspends by each year. The national debt won't fall — in fact, it will keep rising."

Simple enough?

Here's more:

"It also depends on what a country is spending the money on. Borrowing to invest in a new road network is one thing — it's a one-off spend that should improve the country's productivity and therefore its growth. It's an investment that should pay for itself.

But if a country is borrowing merely to service its existing commitments — such as on pensions or healthcare spending — then that's a problem. This is a 'structural' deficit. Basically, it means a country is spending above its means and something has to give.

This is the real problem that Britain faces.

Even before the financial crisis, we were spending too much on things we can't afford in the long run. That's why the cuts are necessary. And it makes sense to try to tackle the issue now, because cutting the debt will also leave us less vulnerable to future shocks in the financial markets.

Make no mistake, if we were part of the eurozone, we'd probably be somewhere near the 'PIGS' hit-list (Portugal, Ireland, Greece and Spain) that's caused so much woe on the continent.

However, the way the cuts are dealt with does matter. If the government fails to tackle waste (back-office admin and costs), but ends up slicing away at the useful parts of the public sector, it won't be as effective. And the more taxes are hiked, the greater the risk of slowing the economy.

In other words, it's not a naked choice between 'austerity' and 'stimulus' or if we have too much debt — it's about using the resources we have more efficiently."

So we cannot just "hunt the bastard down" ala Tommy Tiernan because they could be anyone, anywhere.

Until we unfuck ourselves, we are fucked.

Why does no-one ever talk about Plan B?

Which is real easy. We default. We simply stop the direct debit mandate and then, just like Iceland did, we ignore the squealing. Sure, we will be in everyone's bad books for five or ten years, but so what? We will emerge debt-free and our kids and their kids will hail us as heroes for releasing them from a debt that the bastard Labour party created, whilst the "opposition" looked on and did nothing.

There's always an answer. No matter what the problem is.

I support Plan B.

What about you?



Bucko said...

Plan B definately. If anyone squeals, refer them to Gordon Brown.

Angry Exile said...

Plan B, absolutely. Nations have defaulted before and in many ways it's helped. First off they can't borrow any more at sane rates if at all so things immediately stop getting worse. That in turn means there's no choice but to make necessary reforms, and once those are up and running investors will begin to look more favourably at it again. Yes, it takes a while to happen but in the long run it's better than going further into debt that can't be paid. And if Cameramong's going to do it he hasn't got very long left to get away with pinning the blame for it on Gordon Brown. In fact he really should have started making 'oh, fuck, it's a lot worse than we thought' noises the morning after moving into Downing St and defaulted before Christmas, pinning responsibility for the whole sorry mess on Labour where it belongs and destroying them for deacdes. I think that boat has just now begun to leave, so if Cameramong wants on it he must choose to jump soon or wade shortly after or swim for it after that, and the pier is next to a raw sewage outfall that runs 24/7.

All of which is academic because he doesn't have the balls.

William said...

Plan b is what every individual or company does when they are declared bankrupt so why not Great Britain?

As AE says though Cameron doesn't have the balls but the truth his he is playing for a different team altogether.

and anyway the national debt is the state's debt not mine or anyone else's who reads this blog unless they have somehow managed to find a 'state application form' and actually signed it!

Angry Exile said...

"... the truth his he is playing for a different team altogether."

Does Samantha know?

Captain Ranty said...

I've used Plan B myself.

It was hellacious for three years but here I am. Still standing and no mental scars.


westcoast2 said...

Default seems to the way forward.

Why does the UK hold nearly $0.5T of US debt (T-Bonds, US equivalent of Gilts), Why did this increase by $34.2 Billion in Nov 2010 and seems to be increasing while other Non US holders seem to be selling?

ZH--> Nov Tic Data

Jacobite said...

Plan B definately and then live within our means. Somehow I dont think that will happen, I think in the long run were goosed.

Blurble said...

I'm not sure if I'm missing a point. But this is how I see the current situaiton:

Banks can 'print' money at an APR of 0.5%, they can then 'loan' governments GILTs at 1.7-6%.

At 1.3% profit on £1Tn debt, that's £13Bn per year profit, distributable to all eager Goldman Sachs / JP Morgan partners.

So many politicians work/have worked for the banking system, a paranoid cynic might suggest that 'globalisation' and 'debt explosion' could be seen as financial slavery of everyone except financiers in havens, and those useful idiots in government who overspend.

Captain Ranty said...


Yup. I think I wrote that up last year. It was mighty strange at the time.

Still is.

Woss goin' on?


Captain Ranty said...


A lot of what I write is what I would LIKE to see happening.

Sadly, I am delusional. But optimistic!


Captain Ranty said...


Good synopsis. I think you are spot on.

I'm not sure that the govt drones do well out it. I think that it is only the bankers that score.

Mind you, when do they ever lose?


FireballXL5 said...

Plan B is the way to go, but of course it won't happen. Like you Capt. I have also employed that tactic so I know it works :-)

Jacobite said...

Capt in the current moneytery system I dont think the debt can ever be paid back, the real debt is upwards of possibly 4 trillion if you take in all liabillities, even with austerity measures this will figure will continue to grow the MFIC will keep kicking the can down the road for as long as they can until eventually plan B comes into play either your senario or their plan B.

English Viking said...

Most of Gov debt is nothing more than borrowing taxes that haven't been paid yet, from future generations.

Defaulting would require a replacement currency to be adopted, as Sterling would become useless, worldwide.

I wouldn't put it past the scum that 'run' the country to do just that, and accept the Euro, or a 'representative' currency mirroring the US$. Basically, exactly the same as a $, but with HRH printed on it, just to keep up appearances.

The ensuing food-riots, mass-repossessions, mass-unemployment, etc, etc, would be catastrophic.

Angry Exile said...

Would defaulting require a replacement currency? Brazil defaulted in the 80s and Argentina ten years ago, and both kept their currencies. Iceland defaulted last year and there's been no mention of a currency change apart from the inevitable Euro whispers relating to it's EU membership application, and most of their population are against adopting the Euro anyway. Not sure that defaulting was catastrophic for any of them either. The first two bounced back and in time so will Iceland. Might not even be much time either - last year Argentina offered to repay most of what it defaulted on in 01. Mind you, Britain owes an absolute fuckload more money but that's not that relevant since repayment doesn't seem to be a necessary part of the recovery process. Other countries have defaulted, dealt with the short term shitstorm, made necessary reforms and gradually become attractive to investment again. That sounds like what the UK needs, but failing that at the least it needs to lose its 'precious' AAA rating. It's clear that the idiots in Westminster (on both sides) are happy to spend money the country doesn't have and can't repay for as long as they can get credit, and the cheaper the better. More costly credit might be enough to get them to stop it, though personally I expect them to keep going anyway - not like they personally have to worry about paying the higher interest rate, is it? Having to default might be the only thing that will stop them.

English Viking said...

Angry Exile,

I see your points, but I think that the difference is that GB's currency is far more important than those of the other countries you mention - at the moment.

Large (what I mean is LARGE!!!) amounts are held in reserve by numerous big-players; national bankruptcy would be catastrophic for them, too.

Iceland is bust. So what? Who cares, apart from Icelanders (all 320,000 of them. Is it any wonder that a puny economy is subject to the vicisitudes of finance?) and Birmingham City Council, who invested shed-loads into an obviously unviable economy?

Britain is bust? Well, that's a whole new ball-game.

I am not a prophet, but it appears obvious to me that we cannot possibly carry on like this. The **** will definitely hit the fan, and the common man is going to get covered in it.

BTW. Not arguing, you're entitled to your views. I hope you're right, but I fear that I am.

Unknown said...

This debt business is sooo very simple!

If you give a man money to say, cut your grass. Then this man gets into debt buying too many mowers, bad investments and bad management.

Is it right he pass on the debts to you?


The 'torys decided to take on Labours debts. They are registered as a business like all the other parties. We owe nothing.

I was sickened each time those scrotes went through an act (theatre) of Parliament to pass a bill (a bill) then instead of sucking us dry directly with it they waved it in front of bankers and used it as a loan guarantee for instant cash they could never pay back.

It's their fekking debt! Pass it round to everybody. I want to see the three stooges go down.

Jacobite said...

As a country we are a gutted shell, financially,ecconomically,morally,socially,intellectually,militarily. we are a third world nation, we still pretend that we are rich and prosperous when in fact we are lying to ourselves. The trillions that the banks play with in the casino they call the market DOES NOT EXIST! in the past we did not get anything we did not work for, all the supposed wealth is only PAPER an illusion if we default as a country we can break the chains that enslave us.