zico wrote:Sky are covering the news that debt exceeds 100% of GDP for the first time
£2.2Tn debt. BoE holds around 900Bn of Gilts, where all the interest paid by the Treasury on those Gilts is returned back to the Trreasury. The BoE in effect printed money to buy those Gilts, could equally just tear them up.
2007 UK debt was around £500Bn and cost around (paid interest of) 5%. £25Bn/year to service.
1.3Tn recent debt (excluding what the BoE holds) costs around 2%, £26Bn/year. Since 2007 there's been around 40% inflation
Much of 2007 debt was "restructured", older higher cost debt bought up by the BoE who printed money to buy them. Treasury issued new debt spanning across longer periods to maturity costing less to service (2% instead of 5%), of which many are nominal bonds i.e. that 2% compares to target 2% inflation rates.
Recent inflation spikes will further erode the real (after inflation) debt liabilities. The main issue is as/when each Gilt matures the choice of either repaying in full or rolling into another issue may be faced with rolling costing more (2% cost against maturing bond replaced by another that might cost 4%/whatever). But that's spread out over many many years.
The Bank of Japan buys up most of Japans debt that stands at 266% of GDP and where the BoJ holds around 45% of that debt. In effect if the Treasury need money then the 'independent' central bank can print money and give it to the Treasury, but with the smoke and mirrors illusion that the two are separate/independent. Printing/spending money benefits those who do the print/spend, at the cost of devaluing all other notes in circulation, is a form of micro-taxation, commonly called 'inflation', might otherwise be called devaluation. Some states, such as France, would like to push that to the extreme, print enough money to buy up all bonds, stocks, land/properties, a grand nationalisation. Others opine that fiat currencies and promises around the acceptance of such have been pushed too far and that some new paradigm is required. China/Russia favour a return to some kind of gold standard, where money was finite and backed by something tangible. The US assumes 'there is no alternative' (TINA) and strive to keep it that way as being the primary reserve currency setup to replace gold they can print/spend and export inflation onto others despite having (broken) promised to act responsibly. Yet others opine there should be a basket of currencies used to replace the US$ as the primary reserve 'currency'.
Interesting times.