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National Debt

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Re: National Debt

Postby Spankymonkey » Sat Jun 03, 2017 4:54 am

Smouldering Stoat wrote:That's not how debate among grown-ups works.


Have you been watching them then?
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Re: National Debt

Postby diy » Sun Jun 04, 2017 7:10 am

Russell wrote:DIY can you explain why that matters to this degree?


A country can borrow money, service the interest and use inflation and time to reduce it.

e.g. a victorian house worth £600,000 today might have cost £300 new. Had I borrowed the £300, only ever paid the interest etc etc. I have reduced the debt as a ratio to the equity.
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Re: National Debt

Postby LoveandPeace » Sun Jun 04, 2017 6:25 pm

diy wrote:Yes it can be repayed as long as the assets exceed the debt and debt is pinned to the currency. Whether its right to burden future generations with the excess and lack of provisions and artificial wealth of the baby boomer generation is a different debate.


Our currency is decreasing in value against the dollar is it not? So what would that mean in terms of repaying the debt?

With the debt having increase then of course the interet payment will have significantly increased and that would affect the country on a yearly basis.
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Re: National Debt

Postby diy » Sun Jun 04, 2017 8:09 pm

No it's the other way around. Unless your debt is pinned to another currency.

e.g. if there are 5 wassits to the pound and you lend me 10 wassits funded by 2 pound, if they later are worth 20 wassits to the pound then my debt is reduced. however if you lent me in pounds - i'm screwed.

UK currency is bouncing around at the moment, because TM hasn't done a good campaign job and it's not clear what kind of government will exist this time next week. It's probably a good time to buy Ftse 250.
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Re: National Debt

Postby LoveandPeace » Mon Jun 05, 2017 12:44 am

diy wrote:No it's the other way around. Unless your debt is pinned to another currency.

e.g. if there are 5 wassits to the pound and you lend me 10 wassits funded by 2 pound, if they later are worth 20 wassits to the pound then my debt is reduced. however if you lent me in pounds - i'm screwed.

UK currency is bouncing around at the moment, because TM hasn't done a good campaign job and it's not clear what kind of government will exist this time next week. It's probably a good time to buy Ftse 250.


On a monthy average basis for this year the average currency exchange rates were


2017
Jan 1.234480 – 31 days
Feb 1.248308 – 28 days
Mar 1.234149 – 31 days
Apr 1.263652 – 30 days
May 1.292444 – 31 days
Jun 1.288845 – 5 days

In 2014 it was the following

2014
Jan 1.646486 – 31 days
Feb 1.655936 – 28 days
Mar 1.663087 – 31 days
Apr 1.674109 – 30 days
May 1.683980 – 31 days
Jun 1.691485 – 30 days
Jul 1.707290 – 31 days
Aug 1.669659 – 31 days
Sep 1.629786 – 30 days
Oct 1.606801 – 31 days
Nov 1.576953 – 30 days
Dec 1.563153 – 31 days

The value of our currency has been falling since 2014.

However, I notice you are describing a derivative (pinned to the underlier), so I guess it would depend on what our debt is pinned to? Euro's? We have borrowed from the ECB.

So go on ... diy ... explain .. the holes in my understanding as I want to know. Note - that is not said in a cheeky way. I just want to make sure I am understanding this.
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Re: National Debt

Postby diy » Mon Jun 05, 2017 6:32 am

Actually the value of our currency (USD/GBP) has been falling long term since the 1960s, but over the last 20 years, its been bouncing around the same(pre-brexit vote).

But to use the data, in the late 50s and 60s we had nearly $3 : £1, now you'd be happy with 1.3. So imagine a 50 year bond funded in USD, paid in GBP. Let say I was being offered 6% dividend for 50 years. £3M (60k per year). But my original funding of $2.8M is now only worth £1.3M. Sure, I've had £3M of interest payments, but lets assume we avg. 2% inflation and I tracked that with a poor performing bank account - my original investment would be worth $7.5M, but my original pot is only worth $1.3M and I've only had £3M of divis. It looked pretty good at the start, but I've been hammered by the fall in currency.

Sure its pay as you go vs pay at the end, but you get the idea that there is another dimension to borrowing when it comes to countries (actually there are several). So yes its possible to reduce a debt, by servicing the interest only using time, inflation and currency.
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Re: National Debt

Postby Russell » Mon Jun 05, 2017 9:21 am

diy wrote:
Russell wrote:DIY can you explain why that matters to this degree?


A country can borrow money, service the interest and use inflation and time to reduce it.

e.g. a victorian house worth £600,000 today might have cost £300 new. Had I borrowed the £300, only ever paid the interest etc etc. I have reduced the debt as a ratio to the equity.


So you are in agreement that we cannot replay the debt via the standard method? i.e sending a cheque?

Last time we had this debate I was broadly in agreement that the debt could be inflated away, although historically this isn't something we do. However, with debt running at almost 100% GDP, with pension debt its already at that level. Could you inflate that much debt? What would be the wider consequences?
If you can't talk about the problem, how are you ever going to even start talking about the solution?
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Re: National Debt

Postby diy » Mon Jun 05, 2017 12:23 pm

I think its possible, if we define a cheque broadly enough and of course choose the right currency.
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