What happens if our country goes Bankrupt?

Generali

Trust wrote: »

interesting logic,

So the government owes money to banks and is spending the said money on bailing out the banks, smells of double accounting to me!

So if the government wants to spend another £100 billion apart from the BOE who do they ask

Ordinarily, if the UK Government wants to spend an extra £100,000,000,000 then they'll seek to raise that in tax. If they can't do that they'll tell (not ask) the Bank of England to increase their bank balance by £100,000,000,000.It's just numbers on a screen and that is what is meant by printing money.

Now ordinarily the Government will now sell bonds to private investors to the value of £100,000,000,000. This is a process called sterilisation and it stops the extra money that the Government has to spend causing inflation by removing an equal amount of money from private hands.

If the Government doesn't sell these bonds then the amount of money in circulation will rise and that, potentially at least, is inflationary.

itsallagame_2

caveman38 wrote: »

What do you mean inflate the debt?

Sorry, but my understanding is this, briefly,

The Government is trying to DEFLATE the DEBT bubble by recapitalizing the banks by whatever means they can muster but ultimately risking taxpayer’s money to pay off other people’s debt.
If it works the bubble will deflate but the taxpayer will still owe the massive debt. This is relatively easy to fix but VERY EXPENSIVE for the taxpayer.

At the same time the Gov is trying to INFLATE the CREDIT bubble by recapitalizing the banks, again risking taxpayer’s money to get you to spend /loan
But unless you spend the money it is being wasted with no gain and the bubble continues to DEFLATE, leaving the consumer with NO credit.

As you can see this is a very difficult spiral to get out of and VERY EXPENSIVE FOR THE TAXPAYER, a lose- lose situation IMO

A way to get credit moving, and A LOT will be required, would be to actually GIVE money to consumers via credits, to spend, rather than pointless 2% off VAT schemes.

Anyway, as things stand DEFLATION appears to be the status quo
These bailouts etc have to work but atm are not sufficient
But it has to be broken at some point and the longer is goes on the more expensive and painful it will be, thus MASSIVE INFLATION of the money supply would be required to eventually stop DEFLATION
I think that’s the point YOUR SAVINGS may become worth less but hopefully not worthless, as that would be HYPERINFLATION.
We don’t want to go there, if the right decisions are taken now/soon it will be avoided
A world in Hyperinflation would stretch the imagination and it would be stuff for a blockbusting film.

Hope that helps no doubt some one can fine tune or burn my analysis lol

mark5

If your house went up in value say from £50000 to £150000 and you re-mortgaged and turned some of that new equity in to cash or just got a bank loan or credit card.

Then maybe went and spent a few thousand on a nice holiday to Florida,
few thousand on a German car,
few thousand on a Japanese TV,

all that money is now floating around foreign countries and the money is gone out of Britain for good until the Government wakes up and realises the whole country cant work in offices and we need to start manufacturing in order to export again the money wont come back!

Spiv_2

Our country is not going bankrupt.

Moody's said it does believe it will be revising Britain's status (AAA) downwards.

http://www.thisislondon.co.uk/standard-business/article-23626577-details/Moody%27s+gives+Britain+a+little+bit+of+cheer+on+credit+rating/article.do

Never let the truth get in the way of abit of scaremongering, however :rolleyes:. ...

Jim Rogers is playing you all for fools by the way;) A fool and his money and all that....

Cleaver

!!!!!!? wrote: »

Think of your money as a certificate entitling you to a share of pie.

Initially there are 100 certs issued. You get 10 by working hard in return for them, therefore you own 10% (10/100) of the pie should you decide to redeem i.e. spend them.

Now the people who sold you the certificates in return for your work decide to print 100 more. You still have your 10 certificates but now when you go to redeem them you get 10/200 or 5% of the pie.

If you still want 10% of the pie, you need twice as many certificates.

Ergo the value of your existing money has been inflated away by money printing.

Every pound the government prints out of thin air makes your pound worth a bit less. That could be a pound that you are earning - in which case you'll be wanting higher wages, or a pound from your savings in which case you'll be wanting higher interest rates.

Thanks to globalisation you'll find it hard to get more wages and the government has consistently set interest rates too low and shows no sign of doing otherwise in the future. The net effect is that most people will become poorer.

I like that analogy !!!!!! and it helped my understanding which was along those lines, but I wasn't sure.

So the next question...

Governments presumably know the above, so why do they do it? Is it simply that it gets 'them' out of trouble at the expense of 'us'? The idea of a short term, easy, fix rather than a long term change in policy and the way the country works?

meanmachine_2

Sir_Humphrey wrote: »

Even taking into account PFI debts, the national debt is lower than most other large economies. The country is not near bankruptcy.

It's the closest it's ever been to bankruptcy, I'd have thought.

The government only has to be forced to take on the liabilities of a major clearing bank and that's it - we're stuffed.

Chances of UK nationalising a clearing bank? Evens, surely.

Rochdale_Pioneers

meanmachine wrote: »

It's the closest it's ever been to bankruptcy, I'd have thought.

So closer than during or after WWII......

Snooze

I can't see Clown letting the country go bankrupt either. That is a HUGE thing to be remembered for and I simply don't think that he has to balls to let it happen.

I think he'll print his way out of trouble at whatever cost to the us/the country/the economy which will ultimately result in a loaf of bread costing you £13k.

Being remembered for bread costing tens of thosands of pounds is not good, but it's a lot better than being remembered for bankrupting an entire country.

Rob

Conflict

Spiv wrote: »

Our country is not going bankrupt.

Moody's said it does believe it will be revising Britain's status (AAA) downwards.

http://www.thisislondon.co.uk/standard-business/article-23626577-details/Moody%27s+gives+Britain+a+little+bit+of+cheer+on+credit+rating/article.do

Never let the truth get in the way of abit of scaremongering, however :rolleyes:. ...

Jim Rogers is playing you all for fools by the way;) A fool and his money and all that....

Britain's AAA status would only be impacted if Brown and Darling completely lose there marbles and fully nationalise any of the banks and take on the liabilities as well. Britain is in a VERY fortunate position in terms of being able to pay its debt - its the one to print the stuff that it is in, as such it will always be able to pay its debt, same as the US is. The problem for the UK though isn't the credit rating its the damage internally if the UK would have to print like a mad man to pay its debt.

In terms of other countries though - France is now being mentioned as may be needing a downgrade from AAA, as its government debt levels are getting to scary levels and the problem is only getting worse not better, and it cant print its way out due to being in the Euro.

Rochdale_Pioneers

Conflict wrote: »

In terms of other countries though - France is now being mentioned as may be needing a downgrade from AAA, as its government debt levels are getting to scary levels and the problem is only getting worse not better, and it cant print its way out due to being in the Euro.

We went into this crash with debt of 44%, France with 64%.