Somebody called 'fire up the printing press again' (probably a pseudonym) left the following comment on Home-Owner-Ism unravelling before your very eyes:
The only solution seems to be to just print more money like they do in the eurozone. Pay off the Chinese etc that way. A couple of strokes on the keyboard and the debt is paid off. Of course sterling will be worthless but all other currencies will soon be worthless as well as they have similar problems so everybody is happy. I can't see where else the money could come from.
1. Please remember that there is no fundamental difference between a UK government bond (or 'gilt') and a UK bank note, except for that the latter is a non-interest paying, small denomination bearer bond - but both of them are backed by the UK government. If you take your £100,000's worth of UK gilts to HM Treasury on the maturity date, they are perfectly entitled to give you a suitcase full of £100,000's worth of crumpled fivers in exchange. Similarly, if you had saved up £100,000 in crumpled fivers and decided you would rather earn interest on it, you could walk into HM Treasury, hand over your suitcase and ask for UK gilts with a face value of £100,000.*
2. Remember also that the UK government is merrily socialising the bad debts that the banks have incurred, i.e. it is giving the banks UK gilts in exchange for mortgage-backed crap. If the bank receives UK gilts with a nominal value of £100,000 in exchange for mortgage-backed crap with a face value of £100,000 but a market value of £60,000, the UK government has lost £40,000 and the UK's national debt goes up by £40,000.
3. The banks can then repay the Chinese etc by handing over shiny new UK gilts (or with the proceeds of selling them). So the Chinese end up holding £100,000 of UK gilts, rather than £60,000 of mortgage-backed crap and the UK's external debts go up by £40,000.
4. We could of course short circuit the whole process if the UK government just printed enough new bank notes to repay the Chinese in full in exchange for the Chinese waiving the money that UK banks owe them, but seeing as it makes little difference whether the Chinese end up holding UK gilts or UK banknotes (see paragraph 1 above - the Chinese would convert these straight back into UK gilts to be able to earn a bit of interest) it makes very little difference either way.
* Yes there are upper limits on what actually counts as legal tender and you'd be arrested on suspicion of money laundering, that's just details.
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2 comments:
Thanks for that explanation. I'd go for option 4 and pay China directly with crisp new banknotes. They then transfer them into UK gilts. In a years time or whenever they come looking for their money again we dust down the printing press and give them what we owe plus the extra interest.
The only problem of course is that the pound tanks. But where else would they go ? Norway or Canada maybe. They're stuck really. If they don't keep the West afloat then there's no market for their goods and they sink with us. We seem to be in a mutual death grip. A war might shake things up a bit I suppose. Iran would probably be the obvious scapegoat to have a pop at.
FUTPPA, as I hope I've explained, it makes bugger all difference which way you do it. If the UK government knew of a neat way to reinflate the house price/credit bubble don't you think they'd have already done it?
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