Do British voters think they can just go on spending more than they earn forever?

FTBFun

Wookster wrote: »

If you read some of the more moronic posts here (eg hamish) then it's pretty clear that the less financially astute think you can live beyond your means indefinitely.

You may disagree with him, but calling his contributions "moronic" is massively unfair.

dtsazza

No, I don't.

Unfortunately our governments disagree with me on this.

And when the current one suggests maybe living within our means in future, outer voters (and unions) get aggrieved and hold strikes/demonstrations.

dtsazza

Besides:

pqrdef wrote: »

Overspending by governments isn't a problem because they don't have to pay it back. They just roll it over. Nor does the next generation have to pay it back, they just roll it over as well.

They do have to pay it back, which is entirely the issue here. They may pay it back by replacing it with a new line of finance, but that's the crux of the issue - it assumes that such a line of finance can be obtained on favourable terms.

Ultimately the reason for the rolling over is because the initial debt is due, and needs paying back. Which makes the country subject to eh whims of its (potential) creditors.

There's no sovereign right to borrow money at <2% interest. If borrowers decide that they don't want to lend to a country for less than 10% returns, then the country has to just suck it up. What seems to happen is that markets are blamed for not working properly, when in fact they're exactly right - the "correct" price is the one that lenders are prepared to lend at.

Any decision to take out debt without a specific plan to repay both interest & capital over the term, and instead assume that you'll be able to get another loan to repay it, is financially imprudent.

The trouble only starts when lenders want silly interest rates. The Greek problem isn't repayment, it's servicing.

Define "silly"? What's a non-silly interest rate at which to lend to Greece right now?

As above, one can only borrow money at the rates that lenders are prepared to offer. Unless you negotiate a contract with some sort of interest rate ceiling, this rate is uncapped.

Simply assuming that you'll be able to reborrow money at rates that you consider attractive (/non-silly) is taking a gamble on the future in a way that seems strictly unnecessary.

Nobody explained to the markets that government bonds were only backed by the issuing country.

Oh really? If markets decided to infer that bonds were somehow backed by the ECB/IMF/"Greenspan put", that's their prerogative to do so - just as the losses are theirs if the guess turned out to be wrong.

I'm surprised that you think the markets were somehow undereducated on this. It's a fundamental of any bond issue that the debt based on the issuer's promise to repay.

But the Germans have reneged on their over-indulged daughter, and decided retrospectively to let the bank - and the daughter - know that she was spending their money, not his.

OK, it was her that was doing the over-spending. But it makes a difference whose money she thought it was. She probably wouldn't have set out to default on the bank. But she thought she was spending daddy's money, and he'd got plenty, and he'd never given her any indication that she wouldn't be forgiven.

Well I think the bank might be forgiven for feeling that it's daddy who's defaulted, not daughter.

I couldn't disagree more. If the banks thought that a failure to pay would be daddy defaulting, then they should have ensured that he was a guarantor on the loan, or co-holder of the account.

A bank that just assumed he'd ride to the rescue would have been incredibly negligent, and deserves the losses it will suffer as a result of this absurd failed gambit.

And the daughter's a bit of an idiot too, for assuming that she wouldn't need to pay back the money without specifically OK-ing it with her father.

Both bank and daughter appear to be living in a fantasy world, and have made no attempt to check that their version of events accords with reality. It's their prerogative to do so, sure, but it's their fault if they make bad/costly decisions because of this.

One possible outcome of all this is a general downrating of sovereign debt, as markets realise that democratic governments and their voters, though they have the most resources, are without honour and can't be trusted.

If we arrive at a situation where mega-corporations and oligarchs can more easily finance their operations than governments, there could be a major shift of power.

I think it's a bit of a stretch to imagine that corporations will be considered more trustworthy than governments after this. Corporations aren't exactly "with honour" when it comes to debt repayments either, and are subject to more outside forces (importantly, nearly a strict superset of those that affect the governments in the same jurisdictions). Plus they can't print their own money, which is a good get-out-of-jail-free card for most governments.

We might be seeing, not the end of capitalism, but the beginning of the triumph of capitalism as power moves back into private hands.

Hopefully we'll see the end of an assumption of near-zero sovereign interest rates, and an attempt to pay down the debt and balancing budgets.

lvader

Debt is never a problem in itself, it's the cost of maintaining the debt that is. A point that Labour struggles with.

ILW

lvader wrote: »

Debt is never a problem in itself, it's the cost of maintaining the debt that is. A point that Labour struggles with.

They also tend to have a problem working out the difference between borrowing to invest, and borrowing simply to spend the money.

ruggedtoast

The_White_Horse wrote: »

i think that as long as the public sector get their pay rise and massive pensions, all will be well with the world. the fact there is no money, is irrelevant. gotta love the lefties.

I would like to get my pension, hang nipple tassles on it, and thrust it in your face. Just to see what you would do.