Reply to post: Re: Marx would be proud

Labour: Free British broadband for country if we win general election

I ain't Spartacus Gold badge

Re: Marx would be proud

Yes but where it becomes the magic money tree is that they simply print new bonds to pay back the old.

No, that's what all governments do. Paying off debt is actually incredibly rare. Only Nigel Lawson and Gordon Brown have ever done it as Chancellors - and then it was only for a couple of years.

However, so long as the government borrows less in a year than the economy grows, the debt to GDP ratio falls. Which is the measure that matters - as it's the year's output that has to pay for the taxes to fund the interest on bonds.

Particularly as government bonds aren't linked to inflation (didn't used to be anyway - some now are). So a combination of economic growth and inflation makes old debt look less and less important. As long as a government can cover the interest, isn't borrowing too much and the economy keeps growing, government debt looks after itself and slowly drops.

The problem is if you break the market's confidence in your government bond market. Because then you can't borrow anymore and have to resort to printing the stuff or QE - depending on how dire the situation is. QE is inflationary through a falling currency (but at least reversible), printing is permanent and if done too much will lead to hyper-inflation. Again QE done to counter a depression (as in 2008/9) is fine - it generates market confidence as the government saves the day. QE done to vastly increase spending does the opposite. It destroys confidence further and leads to comparisons with Venezuala.

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

SUBSCRIBE TO OUR WEEKLY TECH NEWSLETTER

Biting the hand that feeds IT © 1998–2020