is it possible to be a global grant bovey?

ninky_2

Generali wrote: »

Who would they sell to? It may sound like a daft thing to say but for every seller there must be a buyer.

some other poor sucker.

good point.

ninky_2

Generali wrote: »

Some countries in the past have simply repudiated their debt, for example Russia 1998. They refused to make any more coupon (interest) payments on what they owed or repay the capital to either domestic or international creditors.

.

so what happened to russian pensions as a result?

blueboy43

ninky wrote: »

true. my point was if those services were less reliant on state finance they would be less vulnerable to national debt / default. it's counter intuitive to a state interventionist like me but i'm just mulling stuff over.

for example if taxes were somehow paid directly to the services rather than via the state (not sure how that would be different to just paying for them, it would have to be to protect the less wealthy, but i'll think of something) would that remove vulnerability to state bankruptcy......:undecided

Otherwise known as privatisation.

ninky_2

blueboy43 wrote: »

Otherwise known as privatisation.

yes quite right. gold star go to the top of the class.

ninky_2

Generali wrote: »

If the UK Government did a Full-Bovey and just said, "We're not paying" then annuity payments, the vast majority of which go to pensioners, would cease, UK banks would be instantly insolvent as most of their reserves would be suddenly worthless and pension funds would have a lot less in the pot than they thought they had.

probably talking to myself here but let me see if i've got this straight....

so the government borrows money from its own people to pay for the public services its people? in turn those people expect not only the services but their money returned with interest - and yet more services in the future?

isn't that a bit like anthea turner lending bovey money so he can buy her a birthday gift and her expecting not only the iou to be settled from who knows where but to get an even bigger birthday present next year?

madness.

neverdespairgirl

It used to be the case that the King had to hock the Crown Jewels as security for debt.

Generali

ninky wrote: »

so what happened to russian pensions as a result?

Russians didn't have private pensions as a rule at the time due to this happening relatively shortly after the post-Soviet era began. However, people living on state pensions found that their pension left them a very long way below the level of absolute poverty (ie not enough to feed themselves). The same was true for many state employees.

vivatifosi

Generali wrote: »

The trouble with a state default is the knock-on effects. You asked before who owned the bonds. Well the owners fall into 3 main groups: banks (banks hold the largest part of their reserves in Gilts), pension (and other investment) funds and annuity providers.

If the UK Government did a Full-Bovey and just said, "We're not paying" then annuity payments, the vast majority of which go to pensioners, would cease, UK banks would be instantly insolvent as most of their reserves would be suddenly worthless and pension funds would have a lot less in the pot than they thought they had.

ninky wrote: »

could the annuity providers not just move their money before that happened?

I know Gen's covered this off already, but just wanted to give an insight from a pension trustee point of view. We are actually bound by quite a lot of red tape, which means that the regulators want to know that we have an investment strategy and that we agree with our fund manager how that will work in practice. Often such issues (firms going under or countries defaulting) happen relatively quickly, so you don't have as much time to respond in terms of discussing the issue as trustees, running it past your fund manager, deciding whether you need to act.

In that amount of time the market most likely will have moved anyway. Investment decisions that we make have to be strategic, there's very little space for tactical change due to volatility. With a balanced portfolio this is fine, it would only be a concern if a big chunk of money was in say UK gilts or and the UK decided to default, but it certainly wouldn't be without ramifications and would take a pension fund a long time to come back from.

ninky_2

vivatifosi wrote: »

With a balanced portfolio this is fine, it would only be a concern if a big chunk of money was in say UK gilts or and the UK decided to default, but it certainly wouldn't be without ramifications and would take a pension fund a long time to come back from.

sounds harsh but isn't that how the cookie crumbles when it comes to investing?

i can see from a pragmatic point of view why that commits nations to honour their debts etc but surely the whole thing is just built on systematic failure? i.e. you are borrowing from the population to provide services for the population on the basis that the debt can be indefinitely passed on and even increased.

vivatifosi

ninky wrote: »

sounds harsh but isn't that how the cookie crumbles when it comes to investing?

Yep, they could. But then any time they wanted to go back to those they defaulted on, and at some point the likely would need to, then the answer will either be a) that'll be a lot of percent interest please, or b) the rather more terse f.o.a.d.