By Big Al This post is definitely worth reading!
When one of our “family” posts something that seems definitely a worthwhile read for everyone, we will post it in hopes of a larger number of people reading it. Thank you FundamentalAnalysis!
FundamentalAnalysis says:
In regards to the level of debt at the government level, since many western governments are facing a similar crisis I will discuss with reference to the UK.
As always the level of debt alone in the economy isn’t an issue, its more the debt /income ratios especially when it becomes skewed. That ratio has slowly gone out of whack since 2008, its almost a guarantee that the debt cannot be paid back under normal circumstances, external forces are required…therefore we now adjust the ratio to focus on the main issue which I think is debt interest/income. Which is how servicable is the interest, for now we are ok based on statistics but to delay the inevitable of a fiat system the government has a number of interesting options available which can be utilised with the assistance from the bank of england.
A debt jubilee is a radical solution, but that could have unintended consequences so lets park that one aside for now.
Given the low interest rate environment, the govts can keep rates low issuing more and more debt (funded by corporations, individuals, or even the bank of england itself)….any higher rate debt that comes due will be refinanced at ultra low rates….. effectively if the BOE bought it, it would be a form of quantitative easing, but the governments could also implement a rule whereby all pensioners must own a small % of govt bonds forcing individuals to own some and effectively finance the refinancing of the debts. Whilst the interest rates remain very low, the inflation that creeps into the economy would effectively devalue the debt levels over time as is currently the case. If however the bank of england were to purchase all the new bonds issued at say zero rates…then the government ultimately would never need to pay them back as it could always be refinanced at zero rates, so we could keep the hocus pocus going and the general population wouldn’t really catch on as everything would be fine. Ideally this would need to be co-ordinated with other governments/central banks otherwise it could lead to political issues.
The UK government itself can then also start taxing primary residences to boost the income aspect re: Debt/income ratios. Government housing schemes, low interest rates, quantitative easing has led to a big rise in asset prices like housing. The UK government and BOE have essentially created paper wealth for homeowners so it could claw some of it back via a capital gains tax on a primary residence once sold or some form of a mansion/land value tax. The government could collect a tremendous amount of wealth this way. House price increases trap value in the asset and isn’t of benefit to the government or the economy unless they tax it.
The other solution is …read more
Source:: The Korelin Economics Report
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