Email of the day on debt
Comment of the Day

February 18 2021

Commentary by Eoin Treacy

Email of the day on debt

In the 1960s David Cameron's father, Ian who was the head of the Gilts department, taught me when I was working. at Panmure Gordon, that states never repay their debts. They issue new bonds to refinance old ones when they come to maturity. Apart from President Andrew Jackson in 1835, there is no modern example of a state repaying the National Debt. It is about time that experts and journalists stop causing anxiety among older people who think that states are burdening their children and grandchildren with future debt repayments.

Eoin Treacy's view

Thank you for this personal account. I agree governments never pay back their debts. They always issue more debt. However, the money for the bonds has to come from somewhere. If the yield is high enough it will siphon private savings from the economy to fund the government. If the yield is not attractive, the central bank will have to print the money and buy the bonds.

In the first case, the currency strengthen, growth has a harder time raising capital but value should do well. In the latter, they devalue the currency to fund government. All private savings are eroded. Those with savings pour them into financial assets to hedge against the falling purchasing power of the currency.

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