Who is global debt owed too?

sabretoothtigger

that country gains a competitive advantage by making its exports cheaper, so all countries could end up chasing their currencies lower.

A lower currency means the workers on that country work for less. It reduces internal costs in that way but elevates the cost of imports

In any country which relies on imports greatly a weaker currency lowers the overall wealth but may allow for cheaper production. They dont have to do this, its just easier then competing via very high quality goods with workers paid a high wage.

Germany is an example of higher paid workers and higher quality goods with overall success. Some would argue they gain from weaker currency but the demand does not always rely on price and the price is not solely determined by currency as its an open ratio it depends how rich your customers are.

USA is poor I think this is what causes everyone to try and match them instead of struggling to find richer markets

a unified QE program and flood the market with cash. I assume the logic is to solve the credit problems and at the same time devaluing all currencies together in a controlled way. This seems to be the closest I've heard to any way out of this problem

Currencies operate as ratios. So USA to UK or EURO to Japan or number of pounds to buy an ounce of gold

So what good do they achieve by doubling the numbers. The ratios are the same.
What they really mean is the debt written for 1000 yesterday will become worth half as much. So they would be wiping out anyone who has lent or invested money.
Also cash savings, fixed pension plans and insurance policies for sums of money would all half in value

Anything is possible but that scenario is chaos and destructive to open reliable trade in the world. Investors who dont get their money back will not return if they lose half

JohnRo

tdowson wrote: »

This seems to be the closest I've heard to any way out of this problem - the size of the debts are such that they seem unpayable, ever.

The debt will have to be paid at some point, what we don't know yet is exactly when or quite how it will eventually pan out but there is and will be a colossal price to pay one way or another. So far the most imaginitive solution has been to kick the can down the road, carry on borrowing, repaying the minimum interest and just let the next lot worry about it.

I listened to that ridiculous woman Harriet Harmperson talking on question time earlier about how the last labour government had reduced the deficit. That's the kind of complete, bizarre and utter nonsense that got us in this mess.

Until governments of all stripes find a sustainable way to stop their deficit spending and more or less balance the books instead of bribing voters with unsustainable programs, policies and economic party political lies, then the sugar coated crust of "western" society and the relatively luxurious lifestyle we all take for granted is going to continue accelerating towards one almighty extinction.

It's a prospect most people just don't want to contemplate or even hear about, so little wonder it keeps getting passed along.

tdowson

Re: The idea floated this week that all major central banks combine to flood the market with money in a united effort, and in so doing all devalue their currencies together.

JohnRo wrote: »

So far the most imaginitive solution has been to kick the can down the road... ...the lifestyle we all take for granted is going to continue accelerating towards one almighty extinction. It's a prospect most people just don't want to contemplate or even hear about, so little wonder it keeps getting passed along.

sabretoothtigger wrote: »

What they really mean is the debt written for 1000 yesterday will become worth half as much. So they would be wiping out anyone who has lent or invested money. Also cash savings, fixed pension plans and insurance policies for sums of money would all half in value.

Anything is possible but that scenario is chaos and destructive to open reliable trade in the world. Investors who dont get their money back will not return if they lose half

If the choice is kick the can down the road until everything implodes, or wipe out savings and investments in order to wipe out the debt.

I wonder if the Governments could unite to justify the second course of action if they have no other solution that will avoid the first scenario.

Does anyone think it could happen?

JohnRo

The problem is that politicians in different countries have different agendas and different situations exist within, at the end of the day a politician isn't thinking about what's going to be best for their country over the next 50, 100, 200... years. They might pay lip service to it but all they're thinking about is how many people are going to vote for them at the next election, you can't do a thing in opposition. Their political horizon is probably 4 years max and to implement the type of policies, within that time frame, required to tackle the real national debt (as opposed to reducing the amount government add to it annually) is going to require an effort voters will find unacceptable and hate (or lynch) them for, it'll be career suicide.

The private equity markets seem to be in pretty good shape imho, they've had to get lean and mean to survive the last few years. Exact opposite of the investment banking sector which has very little competition, huge barriers to entry and very little incentive to provide value. The underlying problem is ever increasing sovereign debt and an investment banking system that's leveraged to a point it has no hope of ever realising if required to, it's basically playing with wealth (debt) that simply doesn't exist. I'm certainly no expert but I think it's generally accepted no-one really has a clue how the hell the investment banks actually make all their money. The obscene profits they make and take seem to be invented as was evident in 2008 when people stopped taking their word for it and started asking pertinent questions. The financial instruments they use such as the derivatives, credit default swaps and the like are so convoluted, complex and fragile it's almost impossible to unravel them and because they're levered it creates panic when things start heading south.

Since investment banking has been allowed to infect and become part of the fabric of the retail sector it threatens to bring down the whole system like a house of cards. We hear all this crap about new rules and regulation but the same dodgy systems and operators exist that caused the mess 3 years ago.

What the politicians of the world need to do is grow a pair and tackle the banking system as a whole, head on, with purpose. Show strong leadership and ignore the threats and whining from banking moguls who are only interested in preseving their incredible, unsustainable profits and undeserved privileges. Forget mickey mouse firewalls. The investment banking sector needs to be completely isolated and relegated back to the dingy basements it used to inhabit in decades past. Of course the relationship between elite banking and political privilege has become blurred and corrupted imho, that's also a big part of the problem. Wag the dog...

The retail banking sector then needs to get back to being a proper business with a clear set of rules and transparent operating methods.

That way the government don't need to worry about using tax payers money to bail out casino bankers, let the investment banks raise their own capital and gamble their own money, if they lose it, <shrug> it's their loss.

Money_Saving_Dude

What should be becoming clear from the elucidation of the bond markets in the posts on this thread is simply how unlike a 'family budget' national finances are. The analogy that we have simply 'maxed out on our credit card' is inaccurate, indeed it is wrong.

As a family when you get to your credit limit you stop borrowing. But as a country you have other options. You can issue more debt, you can devalue, you can print more money, you can even restructure the debt so it takes longer to pay it off. Now it is true that we are reaching a special point in history -- again (eight hundred years of financial folly) but generally governments can do what they bloody well please.

Unless the current debt crisis is managed sensibly, when everyone finally defaults it will be messy. Banks will collapse, which means finance will be much more difficult to get. More businesses will go under, there will be more unemployment, the cost of living will increase (worse than it is at the moment), and life will be generally unpleasant.

Only then -- maybe -- will credit controls be implemented (again) to prevent the free flow of capital that allows those rich enough and savvy enough to know how to avoid paying tax by keeping their money moving around the globe. That will be a big step, and may never happen. Look at why London is the financial capital of the world -- it was simply too tempting not to set up financial opportunities (the so-called euro-markets) to allow companies and individuals from paying their national taxes. Apple, for example, was recently noted for having more free cash than the US Government (before their recent fight over the debt limit). But most of that cash is abroad -- they daren't bring it home because the US will simply tax it.

Understatement: we live in interesting and frightening times.

Ark_Welder

Money_Saving_Dude wrote: »

Only then -- maybe -- will credit controls be implemented (again) to prevent the free flow of capital that ....

...would prevent Apple from ever repatriating their profits back to the US. They do not do so at the moment for tax reasons. Those reasons could be removed if and when the US government decides that the being cash invested in the USA would be a benefit to the US in the long term.

If we have already had 800 years of financial mismanagement then expect 800 more. In the meantime, note that we are still here.

Reactor_2

Global debt is owed to people who have interest bearing accounts or investments. As the majority of people are risk-adverse we can say 80% of the world at least.

So how can this musical chairs of finance keep going? As long as people keep their money in the bank and don't withdraw it all at the same time, governments and companies can keep refinancing, assuming they are making money. Governments have the advantage they can create money and inflate away debt, whilst companies that can't pay back debts go bust and the banks that have lent to them have to burden the cost, unless they were able to sell the debt on in the form of bonds, which means the bondholders will be out of pocket.

We know the world is flush with cash from all the quantitative easing and given how risk-adverse everyone is, it means interest rates will be low for a very long time, so it will be good for those who can borrow, but not good for those who lend. You only need to look at Japan for the last two decades to see where the rest of the world is heading. At some point banks will start charging to use their services, as it makes business sense and inline with the rest of the world. We are already seeing banks in the US charging large clients that deposit cash with them.

If the above has gone over your head, all you need to realise is finance is a zero sum game: for there to be winners, there must be losers.

IronWolf

The reason China has a huge budget surplus is because they own a majority in almost every business in china.

If the UK government suddenly seized 60% ownership of every company listed on the FTSE then we could have a surplus too.

oldvicar

IronWolf wrote: »

If the UK government suddenly seized 60% ownership of every company listed on the FTSE then we could have a surplus too.

Spiffing idea. Should never have got rid of clause 4.

darkpool

sabretoothtigger wrote: »

Currencies operate as ratios. So USA to UK or EURO to Japan or number of pounds to buy an ounce of gold

So what good do they achieve by doubling the numbers. The ratios are the same.
What they really mean is the debt written for 1000 yesterday will become worth half as much. So they would be wiping out anyone who has lent or invested money.
Also cash savings, fixed pension plans and insurance policies for sums of money would all half in value

Anything is possible but that scenario is chaos and destructive to open reliable trade in the world. Investors who dont get their money back will not return if they lose half

Over time savers rarely get the value of their saving back. In 1961 a new E type Jaguar cost 2000 pounds. A comparable Jaguar today would be 50,000. The only reason I can think that 2000 pounds has lost so much buying power over 50 years is that the Government has been printing money over that time.....

With QE savers will lose out due to increased inflation, without QE savers will lose out with banks going bust. I see inflation as a type of tax on people with cash in the bank.

The thing I find funny is thinking of the Chinese with their trillions of dollars in foreign reserves. With a couple of decades high inflation they might only be able to afford a chow mein down my bit