Thursday, Dec 17, 2009

UK debt

Telegraph: There's only one escape from our debt trap

Article suggests that inflating our way out of debt is impossible as 4/5ths of government debt/obligations is inflation-linked. So we have to reduce the debt and here is a kind of novel suggestion, by genuinely paying it down.

Posted by stillthinking @ 12:16 PM (2792 views)
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10 Comments

1. mountain goat said...

No. There is no escape...

The French government currently honors a very unusual debt contract:an annuity that was issued in 1738 and currently yields Euro1.20 per year. I tell the story of this unique debt, which serves as an anecdotal but symbolic summary of French public finances since the 18th century.

The Case of Undying Debt

Thursday, December 17, 2009 12:28PM Report Comment
 

2. fallingbuzzard said...

The baby boomers still believe in the 70s model, which is good news for the rest of the country.

Thursday, December 17, 2009 12:36PM Report Comment
 

3. Jim Green said...

No, there is an alternative: the government can start issuing its own credit, to pay off bonds when they become due. The banks create money out of thin air, enslaving the world with unpayable debt mountains. In such a way governments around the world should retrieve their right to issue sovereign fiat money, and spend it into their economies, interest and debt-free. This could pay off historic debts and pay for infrastructure and public services, and even make income tax redundant as a means of raising government revenues. Would this cause runaway inflation? Historically, eg Weimar Germany, Zimbabwe: ''the usual trigger of hyperinflation is not a freely flowing money supply but is the sudden devaluation of the currency induced by speculation in the currency market'' (Ellen Hodgson Brown (2008) The Web of Debt, p.263). I'd thoroughly recommend this book to all and sundry.

There is also interesting discussion about hyperinflation here, on this author's website:

http://www.webofdebt.com/articles/hyperinflation.php

Thursday, December 17, 2009 01:52PM Report Comment
 

4. drewster said...

Brilliant fresh-thinking article.

One major flaw in this argument though. The Government is responsible for setting the inflation index, through the Office for National Statistics. Clearly the ONS is supposed to be independent, but couldn't that change?

Comrades, the price of tractors has fallen again! Glory to our great soviet leader!

Thursday, December 17, 2009 02:16PM Report Comment
 

5. stillthinking said...

I think most of them track the RPI , but fiddling that doesn't get you round free market price discovery on debt rollover for shorter maturities. As the guy suggests, you can separate state pensions and the like from the index which probably will happen. Rip off granny tibbs instead of the market.

We are currently defaulting though, foreign sterling debt holders lost 20% over the last two years.

Thursday, December 17, 2009 03:38PM Report Comment
 

6. fallingbuzzard said...

And they gained 25% in the previous 4 years. That was overgenerousity.

Thursday, December 17, 2009 04:11PM Report Comment
 

7. drewster said...

stillthinking,

I think the government already announced plans to link pensions to average earnings instead of to inflation. Most people I know got a pay rise of 0-1% this year, while CPI inflation is higher than that. If CPI/RPI inflation remains above wage inflation for the next few years (as seems likely) then pensions will suffer.

Thursday, December 17, 2009 06:14PM Report Comment
 

8. iguana said...

Drewster,
You are right, over the years I have noted this as a factor in determining what the Gov't in power really expects to happen, rather than what their press leaks say. Whenever the index linked payments are linked to prices, prices are expected to stagnate. When linked to wages, then wages are expected to fall or stagnate. As well as the basis for pensions, a good guide to follow is the basis for Civil Service wage increases - I think that if anyone cares to check, the correlation holds good. Best wait for the effective date of the pension calculation change before running for inflation cover.

Thursday, December 17, 2009 06:39PM Report Comment
 

9. nomad said...

"Comrades, the price of tractors has fallen again! Glory to our great soviet leader!

Comrades, the price of houses has risen again! Glory to our great soviet leader!

Thursday, December 17, 2009 08:04PM Report Comment
 

10. Bearly Legal said...

Are we moving to the next stage of grief then? We started with denial and although there's plenty of that still, I'm seeing more anger about these days. Could this be the first sign of bargaining?

Thursday, December 17, 2009 08:35PM Report Comment
 

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