Could high global government debt cause a crash?

[Deleted User]

In a disaster scenario, in a mass Quantitive Easing operation, could the central banks (eg Bank of England) purchase all government bonds, from investors? And then the government would owe the central bank the bond money, but could the central bank not just write this off, since central bank basically equals the government?

Aretnap

newbinvestor wrote: »

In a disaster scenario, in a mass Quantitive Easing operation, could the central banks (eg Bank of England) purchase all government bonds, from investors? And then the government would owe the central bank the bond money, but could the central bank not just write this off, since central bank basically equals the government?

That's pretty much what happened with QE from 2009-2016, albeit the BOE bought about a quarter of government debt. In theory the bonds bought by the BOE have not been entirely written off and will be sold back onto the open market at some point in the future, but whether this will actually happen before the heat death of the universe is somewhat imponderable at the moment. Much to the disappointment of libertarians and pub bores across the country, hyperinflation did not result; inflation remained low by historical standards.

Aretnap

newbinvestor wrote: »

Japan and China have debt of over 200% to gdp.
USA's debt rapidly on the rise.

Is anyone else worried that this could cause a massive crash? I don't see how the government can ever repay that debt, it's too big.

Why not? When I bought my first house my debt was a whopping 400% of my GDP (ie my annual income - and my pre-tax annual income at that). I have every expectation of paying it off in the next few years.



I realise of course that government debt and individual debt are not directly comparable - for one thing the government pays a lower interest rate than I do, and for another there is no deadline like retirement age) by which the government has to pay back its debt.

[Deleted User]

When the government wants to start paying back it's debt = higher taxes = lesser growth

System

Aretnap wrote: »

Why not? When I bought my first house my debt was a whopping 400% of my GDP (ie my annual income - and my pre-tax annual income at that). I have every expectation of paying it off in the next few years.

I realise of course that government debt and individual debt are not directly comparable - for one thing the government pays a lower interest rate than I do, and for another there is no deadline like retirement age) by which the government has to pay back its debt.

And governments can imposes taxes to raise revenue and print money so comparing government debt and individual debt is totally irrelevant.

Linton

newbinvestor wrote: »

When the government wants to start paying back it's debt = higher taxes = lesser growth

On the other hand most government debt is held by UK entities. So if the debt is repaid the money goes back into the economy.



45% of UK held debt is owned by banks, pension companies, insurance companies etc who need to hold it as a very safe and liquid store of cash - they can hardly hold gold bullion, bit coin, £50 notes or put it all in aa high street bank deposit account. Repayment of all government debt would make life very difficult for them.

Malthusian

Economic wrote: »

And governments can imposes taxes to raise revenue and print money so comparing government debt and individual debt is totally irrelevant.

Unless you need a good way to bring people back down to earth when they are doing boggle-eye analysis of the "Debt is 200% of GDP!!!11!!one" variety.

People can go bankrupt, governments can print money. It largely amounts to the same thing, you get to keep your creditors' money in exchange for finding it very difficult to obtain credit in the future. We no longer throw people in debtors' prisons and most countries are unlikely to face invasion if they default. (Why go to the expense of invasion when you can buy the assets of a country for buttons from a government desperate for non-worthless currency.)

Why would the government want to repay the debt? The crucial difference between a government and an individual in this conversation is that governments are immortal (from the perspective of an individual, not from the perspective of the sun).

Individuals want to repay their debt at some point because their earning potential will one day end, and at that point it is undesirable to be using your retirement savings to pay debt interest. (Equity release is an exception to this but the fact that it is a last-resort solution illustrates the undesirability.) Alternatively if you are in net debt at the point your earning potential ends, you go into retirement bankrupt and face a retirement on the breadline, even more undesirable.

However governments will continue earning money indefinitely. For as long as the economy is producing and expected to grow, there is no reason not to borrow against that future growth in order to even up our income in the present with our income in the future.

Other than primitive Judeo-Christian fear of debt which isn't relevant.

Our grandchildren cannot object to us taking some of their future income and evening up the inequality between us and them, because they will be doing the same to theirs.

As for the indefinitely distant point when it becomes clear that human earning potential is coming to an end, everyone will be far too busy finding a rock to hide under to care about who owes how much now-worthless money to whom.

Albermarle

there is no reason not to borrow against that future growth in order to even up our income in the present with our income in the future.

Yes but there is a potential for there to be no /little/reduced future growth.
In the Western/developed world there is a growing awareness of the environment, and even a rise in anti consumerism/throwaway society , and an understanding that the constant push for economic growth is partly behind some of the problems .
If economic growth was to slow right down , then presumably the large national debts would become more of a problem , long term maybe .

Brian65

The Economic statistic which matters most is the Current Account Deficit.
When you see it you will realise why the Government doesn't want to talk about it. :eek:

Thrugelmir

newbinvestor wrote: »

Is anyone else worried that this could cause a massive crash? I don't see how the government can ever repay that debt, it's too big.

Hence why post war. Central banks have adopted policies to create inflation. Inflation erodes debt.