Western World Debt - How much more can it be expanded before it needs a large correction

Codogly

Registered User
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172
Just wondering peoples thoughts on adding the latest round of western world debt to fight the Covid 19 impact ?
I'm not suggesting that their any other real choice open to central banks and governments but the PINK ELEPHAN in the room is the assumption the this debt will always be managed ... is it possible that a universal write/off of x% will happen at some stage ?
If so who would the big losers be : Investment funds / Pensions ...!!!
 

Trackman

Registered User
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45
I believe it's an inevitability that a synchronised default is on the horizon, although I cant see western central bankers allowing a currency crises to unfold.

The synchronisation of a managed default could only be brought about at a time of war or crises such as Covid 19.

Who loses in all this will be determined by the central banks. Many people believe that the 2008 debt crises was never resolved and we're still dealing with the aftermath.

Printing money to infinity on this scale will go down in history.
 

NoRegretsCoyote

Registered User
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3,486
Debt today is serviced by households with incomes, governments with tax revenues or firms with cashflows.

Could they be over-indebted compared to their ability to repay? Of course.

But it's not remotely comparable to a speculative equity bubble.
 

Protocol

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3,579
By running 5bn surpluses each year for, say, ten years, and with reasonable growth in GNI*, we should be able to get the public debt down to 50% of GNI*.
 

Codogly

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172
Thanks for all the replies ... but question still remains " Who's the Debtor "...!!!

Who has purchased all these billions of low yield bonds ...?

Is it the western worlds Pension Fund ...?
 

NoRegretsCoyote

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3,486
Does anyone believe Ireland can ever pay its sovereign debt back?

Countries almost never repay their sovereign debt, they just roll it over.

The UK has had sovereign debt for 200 years and people keep buying it.

By running 5bn surpluses each year for, say, ten years, and with reasonable growth in GNI*, we should be able to get the public debt down to 50% of GNI*.

But what would be the point? Money is basically free to borrow at the moment. Why not spend it on a Metro for Dublin or new hospitals?
 

cremeegg

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3,682
I think people focus on the debt issue exclusively from an accountancy perspective. And I say that as an accountant.

Looked at from a broader perspective, the world cannot owe itself.

The debt could be eliminated by central banks buying and cancelling debt, effectively printing money.

I owe AIB €100. The ECB gives AIB €100, Now I owe the ECB €100. Finally the ECB forgives my debt. Who loses.

Well obviously everyone else who holds a Euro is worse off, as the number of Euros has risen, but they would be very much worse off if the economy stopped. It also has the possible upside that people lose in direct proportion to their wealth (ability to bear the loss).

This would have an inflationary impact certainly, but well managed it should be possible. There are certainly worse scenarios.
 

NoRegretsCoyote

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I think people focus on the debt issue exclusively from an accountancy perspective. And I say that as an accountant.

I was once on a training course with accountants. They were horrified - horrified - to find out that state pension schemes are under-funded.

"But when the time comes they'll just raise taxes to pay the pensions" - I said.

This just didn't compute to people who come from a world where everything has to balance.
 

BilliamD75

Registered User
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71
Thanks for all the replies ... but question still remains " Who's the Debtor "...!!!

Who has purchased all these billions of low yield bonds ...?

Is it the western worlds Pension Fund ...?
To answer your question, the ecb is the only entity buying negative yielding bonds in the eurozone, the ecb were mandated to purchase 40% of government bonds however in a recent statement the bond market is open ended,
There are no bids from the private sector (excluding mandated pension funds) as in these crazy times private capital would require at least 15%for risk purposes, the ecb is in a very difficult position going forward, it cannot raise interest rates to cover the spread on the bonds regardless of inflation without blowing government budgets to pieces.(the rates are on the rise in the interbank markets) It will need a bailout from the eurozone member states to cover the spread on the bonds going forward which may be difficult to receive or as purple said it may retire the bonds when due again needing political agreement for this to happen,
In these crazy times everything is on the table, there is talk of helicopter( m.f) money to be given to the citizens of the eurozone (debtors) through m.m.t,
 

RedOnion

Frequent Poster
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6,208
Would you buy government debt at a negative yield if you were in the private sector, just asking?
Yes. I have done in the past.

I know people working in the private sector that are buying negative yield bonds because it's their best available return.

If you knew what you were looking for, and spent 5 minutes on Google you'd easily find public records of PLCs that have purchased negative yielding bonds.

But that neither adds to not takes away from the fact that you just made something up, and stated it as fact.
 

BilliamD75

Registered User
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71
Your statement does not hold water, you may have bought short dated paper however any board of a plc would be sacked by the shareholders for a guaranteed loss in the bond markets and locking up capital over the long term, why is it that the ecb holds over 2.5 trillion of government bonds bought in the last few years and continues to do so, you do your google search and I will stick to the numbers,
 

RedOnion

Frequent Poster
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6,208
I will stick to the numbers
You mean you'll stick to making things up?

Your statement:
the ecb is the only entity buying negative yielding bonds in the eurozone
Is a complete fabrication.

Or can you link to any reputable source that backs this up?

Your statement:
private capital would require at least 15%for risk purposes
Is a completely made up number.

And then you start changing terminology to say my statement doesn't hold water?
Your statement does not hold water, you may have bought short dated paper however any board of a plc would be sacked by the shareholders for a guaranteed loss in the bond markets and locking up capital over the long term,
Was a reply to your question:
Would you buy government debt at a negative yield
Nothing about whether it short or long dated.

Stop making stuff up and posting it as fact!
 

NoRegretsCoyote

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3,486
any board of a plc would be sacked by the shareholders for a guaranteed loss in the bond markets and locking up capital over the long term

Good to know that insurance companies aren't holding any risk-free German government bonds as part of their portfolios these days. It's all just punters who are afraid to put them into bank deposits, right?
 

BilliamD75

Registered User
Messages
71
Hmm, properly run plcs would keep the money in cash reserves than buying negative bonds, you provide the links, the last link I provided, he was called a crackpot when he is clearly a pioneer, with your kind of thinking buying negative bonds thank goodness I have taken my money out, at least paddy Power will give you a gamble, I have answered codogly questions about who is buying negative bonds, the ecb 2,5 trillion and counting however according to you that is false, you just want to have a go,
 
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