Interest rates and national debt

chiefie

Is it me or is anyone else concerned that if interest rates start to go up before we significantly reduce the national debt we are in immense financial trouble as a country. Our debt is larger than most. Any economists out there have the answer ?

CLAPTON

chiefie wrote: »

Is it me or is anyone else concerned that if interest rates start to go up before we significantly reduce the national debt we are in immense financial trouble as a country. Our debt is larger than most. Any economists out there have the answer ?

well, higher interest rates wouldn't help with the national debt but rates have been higher in the past and so has the debt: whether you considered these times as times of immense financial trouble is a matter of opinion.

System

National debt has to be seen in a time span of hundreds of years. It is immense but has always been so, proportionally largest I think at the time of the napoleonic wars. It is utterly impossible to consider any possibility of ever clearing it, so there is no solution other than to just go on increasing it and hoping that it doesn't matter.
The only solution would be to default on the entire debt, bankrupt every bank and pension fund, and start again from a position of financial ruin.
So therefore we aren't going to do anything.

Worry about something else that can be fixed.

Linton

About 3/4 of our debt is owned by us: 1/4 by the Bank of England and the rest mostly by UK insurance and pension companies, banks etc with a small amount owned by private individuals. Also we own lots of debt of other countries.

steampowered

The economic has an interesting global map. You can hover over different countries to see what their national debt looks like. Click here: http://www.economist.com/content/global_debt_clock.

The US and Canada both seem to have more debt per person. Debt in France and Germany is comparable.

National debt has to be seen in a time span of hundreds of years. It is immense but has always been so, proportionally largest I think at the time of the napoleonic wars

It was far bigger in the 50s, 60s and 70s. Here is a graph:

Thrugelmir

chiefie wrote: »

Is it me or is anyone else concerned that if interest rates start to go up before we significantly reduce the national debt we are in immense financial trouble as a country. Our debt is larger than most. Any economists out there have the answer ?

The real concern is that we still need to borrow considerable sums in the future. At higher rates. A lot of debt more recently has been refinanced at very low long term rates.

Thrugelmir

Linton wrote: »

About 3/4 of our debt is owned by us: 1/4 by the Bank of England and the rest mostly by UK insurance and pension companies, banks etc with a small amount owned by private individuals. Also we own lots of debt of other countries.

25-30% is held by overseas investors/institutions.

Hopefully they'll continue to buy UK debt in the future.

Masomnia

Thrugelmir wrote: »

25-30% is held by overseas investors/institutions.

Hopefully they'll continue to buy UK debt in the future.

Especially now it is cheaper (although I suppose that also means your income is worth less).

Completely clearing the debt is neither necessary nor desirable, and it's not at historically high levels, but it is still rising and I think that is still a concern. A few years ago it was true that we spent more on debt interest than education, so I assume that is still true, which can't be right. So I do think we're right to get a grip on the situation.

Thrugelmir

Masomnia wrote: »

Especially now it is cheaper (although I suppose that also means your income is worth less).

As a consequence a higher return would be demanded. UK debt yields have risen faster than some Eurozone or US rates in recent weeks.

Linton

Thrugelmir wrote: »

25-30% is held by overseas investors/institutions.

Hopefully they'll continue to buy UK debt in the future.

The UK has one of the best records in the world, the government never having defaulted on the debt in hundreds of years. At the moment the market will happily buy any further debt the government wishes to issue and expect virtually no interest.

Clearly it is very desirable that this state of affairs continues, however it's a long term strategic concern rather than a short term emergency. Note that our government debt to foreign countries is significantly offset by their debt to us.

gagahouse

Linton wrote: »

The UK has one of the best records in the world, the government never having defaulted on the debt in hundreds of years. At the moment the market will happily buy any further debt the government wishes to issue and expect virtually no interest.

Clearly it is very desirable that this state of affairs continues, however it's a long term strategic concern rather than a short term emergency. Note that our government debt to foreign countries is significantly offset by their debt to us.

Tend to agree and do not fear rates rising significantly. We live in a world with 3 major trading blocks (Americas, Europe and Asia) where Europe and Asia are net exporters and the Americas is the default importer.
The net exporters recycle their surpluses by investing in US debt mainly - in other words they are happy to finance their customers consumption. In this scenario Savings will consistently be greater than Investment and therefore rates at the longer end of the interest rate term structure will remain low no matter what is happening to base rates.