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Who Makes Up The Bond Market?

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I'm just a mere pleb, but I want to try and find this out.

Austerity measures are taken so our debt is manageable; so that we don't default, as this is a bad thing we are told. Like a person with a bad credit rating after going bankrupt, we couldn't borrow any more money, or, if we did borrow, it'd be at higher rates of interest. Ok.

But who/what makes up the bond market, when you get to the apex of it? Pension funds? But we are told that we can't have decent pensions. So that seems to be somewhat at odds. Other nation states?

I'm talking specifically the UK debt.

It seems that the BoE/Gov. can change economic rules when it suits a certain section/sector of society/the system. They give it a fancy name like "quantitative easing" and assure everybody that it's necessary. But in other instances, economic rules cannot be changed. Everything must stay in the confines of "the market" (unless it affects certain sectors of society).

What I'm getting at is, Joe Mug loses his job in the name of "austerity." Whether it's a direct cut, or his business has dried up as a knock-on effect. But for who's benefit? Ultimately, where does the money go? On an individual level, Joe Mug can borrow too much money, go bankrupt and get free of the debt. Sure, he can't borrow again at a reasonable rate of interest, but he is at least free from being a slave to his debt. On an individual level, this is deemed ok, even logical. On a national level, it is not. Why not?

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I'm just a mere pleb, but I want to try and find this out.

Austerity measures are taken so our debt is manageable; so that we don't default, as this is a bad thing we are told. Like a person with a bad credit rating after going bankrupt, we couldn't borrow any more money, or, if we did borrow, it'd be at higher rates of interest. Ok.

But who/what makes up the bond market, when you get to the apex of it? Pension funds? But we are told that we can't have decent pensions. So that seems to be somewhat at odds. Other nation states?

I'm talking specifically the UK debt.

It seems that the BoE/Gov. can change economic rules when it suits a certain section/sector of society/the system. They give it a fancy name like "quantitative easing" and assure everybody that it's necessary. But in other instances, economic rules cannot be changed. Everything must stay in the confines of "the market" (unless it affects certain sectors of society).

What I'm getting at is, Joe Mug loses his job in the name of "austerity." Whether it's a direct cut, or his business has dried up as a knock-on effect. But for who's benefit? Ultimately, where does the money go? On an individual level, Joe Mug can borrow too much money, go bankrupt and get free of the debt. Sure, he can't borrow again at a reasonable rate of interest, but he is at least free from being a slave to his debt. On an individual level, this is deemed ok, even logical. On a national level, it is not. Why not?

Google. Can you use it?

http://news.bbc.co.uk/1/hi/business/8530150.stm

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Thanks for the links. The bbc one was easier for me to read, so I'll use that for my next point (I was looking on the BoE one, but it's too complicated for me, I don't understand repo/reverse repo etc.)

So the bbc link showed that most of the money is owed to: Insurance Companies and pension funds, Overseas (what does this mean, other nation states?), Banks, Other Financial Institutions.

So if these entities don't get paid, why should the ordinary person (who can't have a pension worth a damn) care?

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I'm just a mere pleb, but I want to try and find this out.

Austerity measures are taken so our debt is manageable; so that we don't default, as this is a bad thing we are told. Like a person with a bad credit rating after going bankrupt, we couldn't borrow any more money, or, if we did borrow, it'd be at higher rates of interest. Ok.

But who/what makes up the bond market, when you get to the apex of it? Pension funds? But we are told that we can't have decent pensions. So that seems to be somewhat at odds. Other nation states?

I'm talking specifically the UK debt.

It seems that the BoE/Gov. can change economic rules when it suits a certain section/sector of society/the system. They give it a fancy name like "quantitative easing" and assure everybody that it's necessary. But in other instances, economic rules cannot be changed. Everything must stay in the confines of "the market" (unless it affects certain sectors of society).

What I'm getting at is, Joe Mug loses his job in the name of "austerity." Whether it's a direct cut, or his business has dried up as a knock-on effect. But for who's benefit? Ultimately, where does the money go? On an individual level, Joe Mug can borrow too much money, go bankrupt and get free of the debt. Sure, he can't borrow again at a reasonable rate of interest, but he is at least free from being a slave to his debt. On an individual level, this is deemed ok, even logical. On a national level, it is not. Why not?

SShhh!! Last year I think that the BoE bought more UK Govt bonds than the Debt Management Office issued. They can't buy direct because that's cheating so the banks buy them from the DMO and sell them to the BoE at a profit. That's not cheating.

The BoE had the money to buy the bonds because it said it had.

The Chancellor says that this cannot carry on because we can't afford it anymore. If people get nasty and the Chancellor is faced with a coil of piano wire and a lamppost then we will be able to afford it again.

People abroad might think that lies are being told if he decides that we can afford it so we all have to be miserable for a while. I don't know why people abroad didn't notice that lies were being told previously. Perhaps they were telling lies too.

It's a bit like people believing that some baked mud resting on some damp mud is worth a lifetime of being given a hard time at work. It's not true but enough people believe it to make the system work.

p-o-p

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And just to make the point, I'm trying to understand who/what is at the apex of this debt that's owed. Overwhelmingly, the answer seems to be pensions. Even when we say banks own lots of gilts, as do other financial institutions, we ask "well, who owns the banks/other financial institutions?" The answer seems to be "banks and other financial institutions and pension funds."

But most people aren't going to have a pension that's worth anything, especially the young generation. So what's the big deal with protecting those particular funds? (In the eyes of the majority, who don't/wont have a decent pension).

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And just to make the point, I'm trying to understand who/what is at the apex of this debt that's owed. Overwhelmingly, the answer seems to be pensions. Even when we say banks own lots of gilts, as do other financial institutions, we ask "well, who owns the banks/other financial institutions?" The answer seems to be "banks and other financial institutions and pension funds."

But most people aren't going to have a pension that's worth anything, especially the young generation. So what's the big deal with protecting those particular funds? (In the eyes of the majority, who don't/wont have a decent pension).

There are two types of pensions : funded and unfunded. Funded pensions are likely to generate some sort of return which will collapse if gilts default. Unfunded pensions are a massive mess and I have no idea how they will turn out.

The gilts held by insurance companies are there for two prime reasons : to help provide an income stream for annuities and to form part of the reserves for life / propoerty / casualty insurance lines. Again, default will be a massive blow to annuity returns and insurance reserves and would probably bankrupt the sector.

Foreign owners of gilts will not lend to the UK for at least a decade if there was a default. In addition, international trade finance would become much more complicated if the UK defaulted which is a huge problem given the foreign currency denomination of most of our imports. We might not starve if we default on gilts but we could certainly be a bit hungrier.

There is no upside to a strategic default on gilts. The only way that a default will happen is if there is no other alternative.

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who buys the bonds?

indeed, who is the customer for everything?

who provides the money?

the answer is the same in all cases.....WE DO!

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who buys the bonds?

indeed, who is the customer for everything?

who provides the money?

the answer is the same in all cases.....WE DO!

In the end, you are right although the steps to get that answer are not obvious.

Ultimately, we give the government some money in taxes now and some cash now which they will return to us in exchange for future taxes that we will owe them in the future. Obviously, there is a limit as to how long this game can continue if we are to earn positive real returns on the money that we give them to-day.

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We might not starve if we default on gilts but we could certainly be a bit hungrier.

Just a bit?

What matters for food is not so much whether foreigners trust UK as a country, but whether they trust Tesco, Sainsburys, Morrisons etc as companies. But if the UK looked like defaulting, that could come into question as their liabilities became harder to service (along with most of the rest of our big companies). Pound collapses, interest rates rise, and prices for anything we have to import (like much of our food and energy) shoot up - your groceries could go from £50 to £500 in a matter of months.

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Just a bit?

What matters for food is not so much whether foreigners trust UK as a country, but whether they trust Tesco, Sainsburys, Morrisons etc as companies. But if the UK looked like defaulting, that could come into question as their liabilities became harder to service (along with most of the rest of our big companies). Pound collapses, interest rates rise, and prices for anything we have to import (like much of our food and energy) shoot up - your groceries could go from £50 to £500 in a matter of months.

Agreed.

Understatement for effect is not one of my strong suits it seems.

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But if the bulk of the money is owed to ourselves, why don't we sit down with ourselves over a nice cup of tea and work out a nice agreeable haircut on the outstanding debts?

Wouldn't this be in everyone's interest?

It does seem a bit odd to be told that we all owe vast debts to pension funds that have no ability it seems to pay out decent pensions when the time comes? There's something oddly circular and futile seeming about this arrangement.

Edited by wonderpup

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There are two types of pensions : funded and unfunded. Funded pensions are likely to generate some sort of return which will collapse if gilts default. Unfunded pensions are a massive mess and I have no idea how they will turn out.

If an unfunded pension is one that has no hard cash behind it then our national debt is also unfunded.

Pound collapses, interest rates rise, and prices for anything we have to import (like much of our food and energy) shoot up - your groceries could go from £50 to £500 in a matter of months.

I wouldn't be paying £500 for £50 worth of food because I don't have that kind of spare cash. Reminds me of a BBC reporter saying that a pear on sale in Moscow cost the equivalent of one weeks average wage. Behind him was a poor looking woman with hundreds of pears on her market stall. Go figure <_<

But if the bulk of the money is owed to ourselves, why don't we sit down with ourselves over a nice cup of tea and work out a nice agreeable haircut on the outstanding debts?

Wouldn't this be in everyone's interest?

It does seem a bit odd to be told that we all owe vast debts to pension funds that have no ability it seems to pay out decent pensions when the time comes? There's something oddly circular and futile seeming about this arrangement.

Yes, seems to make sense. There is an air of the Emperors New Clothes about the whole thing. Nobody had the funds on hand to lend the amount of money that went into the bank bailout. Therefore, that money did not exist......and still doesn't.

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There is no upside to a strategic default on gilts. The only way that a default will happen is if there is no other alternative.

the alternative is a small negative coupon on gilts, after someone else bigger has done it, preferably the japs or the yanks.

one negative coupon only to be taken in conjunction with a small spoonful of deflation.

repeat until the patient recovers.

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But if the bulk of the money is owed to ourselves, why don't we sit down with ourselves over a nice cup of tea and work out a nice agreeable haircut on the outstanding debts?

quite. A spoonful of deflation helps the nirp go down.

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I'm just a mere pleb, but I want to try and find this out.

Austerity measures are taken so our debt is manageable; so that we don't default, as this is a bad thing we are told. Like a person with a bad credit rating after going bankrupt, we couldn't borrow any more money, or, if we did borrow, it'd be at higher rates of interest. Ok.

But who/what makes up the bond market, when you get to the apex of it? Pension funds? But we are told that we can't have decent pensions. So that seems to be somewhat at odds. Other nation states?

I'm talking specifically the UK debt.

It seems that the BoE/Gov. can change economic rules when it suits a certain section/sector of society/the system. They give it a fancy name like "quantitative easing" and assure everybody that it's necessary. But in other instances, economic rules cannot be changed. Everything must stay in the confines of "the market" (unless it affects certain sectors of society).

What I'm getting at is, Joe Mug loses his job in the name of "austerity." Whether it's a direct cut, or his business has dried up as a knock-on effect. But for who's benefit? Ultimately, where does the money go? On an individual level, Joe Mug can borrow too much money, go bankrupt and get free of the debt. Sure, he can't borrow again at a reasonable rate of interest, but he is at least free from being a slave to his debt. On an individual level, this is deemed ok, even logical. On a national level, it is not. Why not?

[your no pleb.]

Default is the logical outcome,

who loses well many people,funds , pensioners, creditor countries, you name it banks etc my mom.

anyone who invested in the UK, to default is disasterous for most but especially for the " financial industry pension funds, assurance companies ,countries and the like [& Banks] because they need a sure "bet" a fairly risk free return[ at least wealth preservation]. You mentioned in your statement " you can't borrow at a reasonable rate" BINGO. Our austerity "bluff" when called

will be like the poor/ the cash strapped people going to the pawn brokersand paying high interest to survive , that's us if our bluff is called. Bond markets & ultimately IMF

We need growth like a addict needs crack................................[ real growth] becuase slowly the State has killed the golden goose.

Default implications have been discussed here i recall, my conclusion if the majority are xxxed we must [savers] back them if it

doesn't get that bad, well, savers,prudent ,etc get some honey.

Growth where to get it demograhics , competitve advantage , brains their all against us

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I wouldn't be paying £500 for £50 worth of food because I don't have that kind of spare cash.

Indeed, I expect most people will move to a cheaper diet in response to that kind of inflation. That'll be what Lucky One was talking about when he mentioned being a bit hungrier.

Yes, seems to make sense. There is an air of the Emperors New Clothes about the whole thing. Nobody had the funds on hand to lend the amount of money that went into the bank bailout. Therefore, that money did not exist......and still doesn't.

Bingo! The money didn't exist, but the banks lent it out to drive a house price bubble.

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Bingo! The money didn't exist, but the banks lent it out to drive a house price bubble.

yes the banks did have it. The accounting system assures that they did otherwise they could not have lent it. even with fiat money you have to own it before you can lend it.

the banks didn't drive the house price bubble. they were part of it.

man buys house for X

man sells house for X+10

man deposits X+10 in bank

bank lends out X+10 for man to buy house.

government supplies X/10 additional base money via money printing OR deficit spendnig (i.e bond issuance)

the bank here is an intermediary. The culprit is government deficit spending.

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But if the bulk of the money is owed to ourselves, why don't we sit down with ourselves over a nice cup of tea and work out a nice agreeable haircut on the outstanding debts?

Wouldn't this be in everyone's interest?

It does seem a bit odd to be told that we all owe vast debts to pension funds that have no ability it seems to pay out decent pensions when the time comes? There's something oddly circular and futile seeming about this arrangement.

Yes, all very perplexing. The pensioners paid into the funds who lent the money which was borrowed by the government to pay the state pensions, NHS entitlements, winter fuel allowances, free bus passes etc. Now they cannot have part or all of various entitlements because the money borrowed by the government from the pensions funds which the pensioners paid into needs paying back. :unsure:

Who isn't needed in this equation, could it be, the parasitical City middlemen who cream off the huge bonuses out of the process?

Edited by Britney's Piers

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Who isn't needed in this equation, could it be, the parasitical City middlemen who cream off the huge bonuses out of the process?

yup, spot on. you can add in the various equity and bond and FX traders who deem themselves to be 'providers of liquidity'

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Yes, all very perplexing. The pensioners paid into the funds who lent the money which was borrowed by the government to pay the state pensions, NHS entitlements, winter fuel allowances, free bus passes etc. Now they cannot have part or all of various entitlements because the money borrowed by the government from the pensions funds which the pensioners paid into needs paying back. :unsure:

Who isn't needed in this equation, could it be, the parasitical City middlemen who cream off the huge bonuses out of the process?

Right. And all in the name of the market and economic rules (which is all a complete nonsense as far as I can see).

For the general worker-bee populace, there are rules and market principals. For others, there are bailouts and quantitative easing.

What if nobody pays. I mean all countries with out-standing debt. A jubilee of sorts. The whole world going to stop because some numbers on a screen arent there anymore? All those guns gonna vanish into thin air?

This is what I'm trying to establish. Some more learned individuals than me have spoken of some possibilities in the event of default. But these are still within the confines of a system that is broken (in my opinion). Why can the system not be changed? Why do millions have to suffer (not just here but globally) for numbers on a computer screen? It is a nonsense. Is it so that the aforementioned parasites can somehow justify what they do and claim great wealth?

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Thanks for the links. The bbc one was easier for me to read, so I'll use that for my next point (I was looking on the BoE one, but it's too complicated for me, I don't understand repo/reverse repo etc.)

So the bbc link showed that most of the money is owed to: Insurance Companies and pension funds, Overseas (what does this mean, other nation states?), Banks, Other Financial Institutions.

So if these entities don't get paid, why should the ordinary person (who can't have a pension worth a damn) care?

Because if (when) we repudiate our debts to them, they won't lend us any more money, and we don't earn enough to pay for what we consume.

Example: I would guess that oil-state SWFs number among our creditors, and that they've been supplying us with oil and taking our credit notes in return, which was bound to end in tears sooner or later. The point is that if we default (or allow our banks to default because too many of their customers default), it will end in tears SOONER -- the very next day, in all probability, which I would guess is deemed unacceptable by most people including our leaders.

And that also embodies an explanation for many coming job losses; e.g. if you work in retail selling Chinese imports, and the imports can no longer be afforded (never could be, in fact) what's supposed to happen?

Edited by huw

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Bingo! The money didn't exist, but the banks lent it out to drive a house price bubble.

They had to borrow the money in turn, i.e. find the money either from a private lender, or from a central bank if desperate; we've seen what happens to banks like NR that couldn't fund (incl. rolling over) their lending.

Who could possibly have had enough credit to lend our banks the vast sums involved? The countries and companies holding several decades' worth of credit notes that we've been using to finance our lifestyles, I'd have thought.

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yes the banks did have it. The accounting system assures that they did otherwise they could not have lent it. even with fiat money you have to own it before you can lend it.

the banks didn't drive the house price bubble. they were part of it.

man buys house for X

man sells house for X+10

man deposits X+10 in bank

bank lends out X+10 for man to buy house.

government supplies X/10 additional base money via money printing OR deficit spendnig (i.e bond issuance)

the bank here is an intermediary. The culprit is government deficit spending.

wrong.

the +10 COULD have been gilt issuance.

but mostly it wasnt.

it was VELOCITY in the shadow banking system that created the debt that allowed the +10.

As soon as VELOCITY stopped, ie, they stopped lending to each other because someone peaked under the growing mound under the carpet, that the whole thing came crashing down.

This INSOLVENCY was described as a LIQUIDITY crisis.

both were true, but the first rarely enforced in the banking sector.

The first is STILL true today.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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