Friday, 21 August 2009

I Just Don't Get It

I have enough problems juggling my own finances without trying to work out how nations run there's but the figures just don't add up.
How can Britain be the sixth richest country in the World when we have a debt of 2.2 trillion?
The USA tops the richest nation league but has a debt of 11 trillion while the second placed Japan owes 7.5 trillion.
Someone, somewhere must be lending out all this money because where else are we getting it from unless we are getting things on credit on some sort of global buy now, pay later scheme.
The eight richest countries are USA (11tn debt), Japan (8tn debt), China (400bn debt), Germany (2tn debt), France (1.5tn debt), UK (2.2tn debt), Italy (2tn debt) and Russia (200bn debt). That's 7 of the G8 countries so we can throw in Canada and their 1tn debt and that's all of the countries that steer the world finances seriously in debt.

My questions are:
1. Where are we all borrowing this money from?
2. How can the richest countries be such when they owe out so much money?
3. How did we get our finances into such a mess in the first place?
4. How are we going to pay it all back?
5. Who are we to tell anyone how to run their country when we can't even run our own finances?
6. Why are we not demanding the resignation of such incompetent money men?

5 comments:

Cheezy said...

I don't know the answer to all those questions! But I'll have a stab at some of them.

1. Both our own and the American governments borrow by selling bonds and gilts on the bond markets around the world, so literally anyone can own them. e.g. our own citizens own these bonds, foreigners, our own companies, foreign companies etc... I think we're currently indebted to lots of other countries (e.g. western countries tend to owe a lot to China, Japan and the oil producing nations - we need what they make!).

2. But surely, it's the ability to borrow/generate such debt that is the mark of the truly rich country??? Debt's just another word for 'leverage' right? :)

3. It's fairly complex, but Robert Peston's book 'Who Runs Britain' is the best potted summary I've read on the credit crunch & recession from a local perspective. It's got interesting biographical info on people like Philip Green and Stuart Rose too.

4. Economic growth. For example, in the USA in the 90s, the galloping economic growth enabled Bill Clinton to balance the budget (which had been totally out of hand a decade earlier) and regain a surplus of revenue.

5. I'll leave this one for others!

6. Cos 'Britains Got Talent' and 'American Idol' are on TV? ;)

Anonymous said...

Lucy,

Cheezy's explanation about bonds is good enough for me.

Debt means the nation borrowed money (issued bonds). It doesn't mean the nation is broke or has zero or negative worth.

If Bill Gates buys a house for 10 million dollars and gets a loan to do it, he has debt. He also still has 45 billion dollars.

Running at a deficit means you are spending more than you are making. Right now, and for most of the last 50 years, the US has had deficits. I think the only years the US didn't were the Reagan and Clinton years. LBJ (Vietnam) and Carter (nice, well intended, clueless "nucular" engineer - yes, he said "nucular" before W did) years were a bigger finacial disaster than the W years.

The US has had bigger deficits than it has today. However, some of things we have done in the past 12 months to get out of the recession have increased the possibility of record deficits, but in all likelihood the US will work its way out of the current situation and return to a normal amount of debt.

Obama seems committed to a balanced or positive budget. Unfortunately he will probably achieve these by raising taxes a lot on just about everybody in America. Of course, we are the ones that approved the spending with our votes!

q

Chris said...

I never really understood economics either Lucy and i took debt as meaning we owed the money to someone
and expected it to be the oil rich countries because who else could afford to lend out such big amounts.
I have read that China own most of the American bonds and could cause havoc if they wished. It could explain why we treat some countries better than others.

Lucy said...

Thanks Cheezy and Q, makes it a bit clearer and i have to agree with you Chris that it could lead to a whole host of problems. Wouldn't we be inclined to play nicely with those who held large fistfuls of the bonds whether we wanted to or not?

Are we actually living on what is just a glorified overdraft and why are we living way beyond our means in the first place? Isn't that what the budget is for?

Anonymous said...

Lucy,

i agee that we should run on a balanced budget. at times there is a reason to over commit - recession or depression - if you follow Keynesian thinking that it will stimulate business and get the people back into an optimistic mood...

Q