Yesterday (the 19th June) the headlines reported –

Massive borrowing to fund the fight against coronavirus means the UK’s debt is now bigger than the country’s entire economic output for the first time since 1963, official statistics have revealed

Ministers borrowed a record-setting £55 .2 billion in May according to the Office of National Statistics, sending public sector borrowing nine times higher than this time last year.

It means the UK’s debt mountain has also now grown to more than the entire country’s annual output.

The UK’s total stands at 100 .9% of the country’s Gross Domestic Product, the first time that has happened in 57 years.

So, my question is who do we owe the money to?

If all the countries (other than a very few oil and gas rich countries) in the world have a significant Sovereign Debt Problem due to the  economic implosion as a direct consequence of the Covid 19 crisis, and have reported significant borrowing, who’s lent the money and who is it that gets paid back.  

I’m no economist and have never understood macro-economics but if all the central banks just print money as the good old Bank of England is currently doing, does it really matter? The list of countries that have defaulted on their Sovereign debt is endless, and if all the Nations defaulted on their debts what can happen? Sure, there’ll be inflation, but if EVERYBODY suffers the same fate it is effectively a Zero-Sum Game.

OK I get it, that if we owe money to the few Petro-Rich Nations and then default what exactly can they do? Do they send in the Bailiffs? Do they try and take over the country – all of them? – I don’t think so! 

Anyway, the Petro-Rich Nations need those defaulting Countries to keep buying their gas and oil.

So, I come back to my original question – if we are in debt to whom do we owe the money to? If its those Banks and Institutions who are seemingly buying Sovereign Bonds, they can’t afford for all these nations to default or go bankrupt, and anyway where does their money come from?


7 Responses

  1. MSS that’s a really good article. I’ve always wondered this!!! You see I thought you could only print money dependant on how much gold you have. But that seems a bit unlikely with all the money in circulation. That would be a lot of gold in the Bank of England vault wouldn’t it?

    Plus didn’t Gordon Brown sell a lot of our gold off at a rock bottom price?

    So who do we borrow from? And who in their right mind would loan money to a country that is already in debt to the tune of £trillionbillion or whatever?

    And if the UK can just print another £100 billion why can’t poor nations? Ok I know when that happens their inflation goes through the roof but why?

    I think it all comes back to gold again but I can’t be sure. Gold we probably plundered 200 years ago lol

    I don’t know but I know an author that will! Phil, aka Judith Chalmers, pre Covid will provide us with the answers that we seek, I’ll prompt him to answer.

  2. Get ready to say goodbye to MSS! We salute you comrade! Jeremy Irons did a video on these very questions many years back, and he wrote to the Bank of England for the answers – which were never forthcoming.

    He also posed the question if all the countries cancelled their debt and went back to Zero – because no one knows who the money is owed to and every nation give or take a billion is in debt to each other. The result would be taxes would be negligible the standard of living would go up for every person on the planet, people would have more freedom and leisure, work less, retirement could be lowered, poverty eradicated the list was endless.

    Errr his video was taken down and he never seemed to appear again.

    These are all questions that certainly need answering! They say they can only print money per head of working population. However, if you followed JI’s video he disproved that theory! Debt & Taxes controls the World.

    Anyway been nice knowing you MSS, all I can say is watch your teapot carefully and any look out for any jabs to the backside with an umbrella.

  3. Haha, I now have 2 “go to friends” for such matters! Phil, you are still welcome to contribute!

    It’s madness isn’t it?

    Farewell MSS, it’s been nice knowing you mate.

    NB the views of MSS are not necessarily shared by the other Edge authors! I guess he keeps his identity secret for a reason!

  4. Why my fellow columnist should credit me with an expert understanding of macro economics I have no idea. True I did narrowly scrape a pass in A level Economics 40 years ago but that simply served to finally convince me that I was certainly too thick for university.

    However, I have heard these very same questions debated in the past so my basic understanding is that the U.K. government borrows money from anyone and everyone willing to purchase the debt in the form of gilts. Now that’s not just rich countries who have huge sovereign wealth funds. It also includes a huge proportion of the U.K. public who are invested in gilts via pension funds, stocks and shares ISAs, investment funds etc.

    I’m pretty sure I’m right in saying that the U.K. government has never defaulted on it’s debts which means it always has the option to borrow money to fund its work whether that be well planned and managed infrastructure projects or emergency undertakings like the current crisis. Remember also that interest rates are at a historic low at present so this huge debt has been secured fairly cheaply. GDP in the U.K. might have taken a massive, hopefully temporary, hit but the fact remains that we are a fabulously rich nation in global terms. As unpopular as it is the option is always there for the government to increase taxation (historically largely income tax but could choose to tax wealth directly) to raise the money to reduce the debt. However, much of the borrowing is long duration so it will, I imagine, as always be managed over the long term. The next budget should be really interesting.

    So, be careful what you wish for. I reckon if our government ever contemplated defaulting on its debts we would all suffer. The U.K. would be referred to as a basket case, our pensions might not ever get paid, public services would grind to a halt, our currency would crash and inflation would spiral.

    WARNING – My understanding and explanation of the issue is likely to be full of holes so I’d welcome further insights from a better informed contributor.

    Now, why can’t I be likened to Simon Reeve rather than Cliff Michelmore or Judith Chalmers?

    1. Thank you Phil. At last an economic guru amongst us. The Edge has class, culture, humour and brains!

      So many unanswered questions, that I’d love to know the answer too. Who are these super rich nations we call up for the loans? Even the rich oil nations are in debt right now.

      If we are borrowing why are we printing money non stop right now? I’m actually asking for a friend. I don’t want to die of ignorance, to be honest I never even really liked Jeremy Irons that much!

  5. Class, culture, humour and brains? Yep, but what do the rest of you bring to the party?

    I am also told, and I quote this anonymously, that if all debt globally was cancelled we in the west would be a lot worse off but starving children in 3rd world countries might have full tummies. Hence charity and overseas aid is an easier pill to swallow and eases our consciences. And I suppose there lies the problem.
    Nice one Phil, knew you wouldn’t let me down fellow pupil of The Rainsford University for the Gifted & Talented.

  6. Big deficits are not a new phenomenon but the best response from a politician was from Ronnie Reagan.
    When asked the question “Mr. President are you worried about the size of the deficit” He turned and replied “No I think it is big enough to look after itself” Whereupon he left the briefing.

Leave a Reply

Facebook Comments