National Debt

The government issues bonds you can buy them from the post office.

Lucien wrote:

lex-man wrote:The government issues bonds you can buy them from the post office.

Is a bond essentially a loan? I read Japan owes 190% of it's GDP, how could that be possible?

Basically it the most simple terms;

You give government £100.
They agree to pay you (say*) £3 a year
After a set period (defined at outset) of time you get £100 back.


(*The amount is set at outset, but will vary at time of issue depending on interest rates etc)

Lucien wrote:

lex-man wrote:The government issues bonds you can buy them from the post office.

Is a bond essentially a loan? I read Japan owes 190% of it's GDP, how could that be possible?

They owe loads of money because of World War 2.

Governments can borrow money off of other governments or be told they owe it because of that war thing they lost. Otherwise they can issue bonds which can be bought by anyone. I have bonds and treat them like a savings account they pay interest for a fixed term in my case five years.

So say I buy £100 worth of bonds after five years I would get back 100 plus 5% a year or about 127 quid. You can also trade bonds on a bonds market but I never done that.

Historically most bonds were bought by nationals (people who live in the country they were issued) but recently foreigners have started to buy the majority of them.

Lucien wrote:

Hexxmas wrote:

Lucien wrote:

lex-man wrote:The government issues bonds you can buy them from the post office.

Is a bond essentially a loan? I read Japan owes 190% of it's GDP, how could that be possible?

Basically it the most simple terms;

You give government £100.
They agree to pay you (say*) £3 a year
After a set period (defined at outset) of time you get £100 back.


(*The amount is set at outset, but will vary at time of issue depending on interest rates etc)

Then the government borrows 4 billion let's say, and pays it back over time. Is there interest on that loan? If so, I can't see why countries allow themselves to get into debt any more than an individual does.

Well that's different - it's more of a loan. That would normally be repaided over time and would charge interest on the repayments.

For the same reason lots of people get into to debt - they need quick capital expenditure and would rather pay more of the longer term for something "now", rather than save up.

There's nothing wrong with debt - just look at the number of people who can only afford their homes through mortgages - as long as you keep it under control and manage your responsabilities.

You're also making an ongoing commitment - which can cause problems if you're income drops.

Lucien wrote:

Hexxmas wrote:

Lucien wrote:

lex-man wrote:The government issues bonds you can buy them from the post office.

Is a bond essentially a loan? I read Japan owes 190% of it's GDP, how could that be possible?

Basically it the most simple terms;

You give government £100.
They agree to pay you (say*) £3 a year
After a set period (defined at outset) of time you get £100 back.


(*The amount is set at outset, but will vary at time of issue depending on interest rates etc)

Then the government borrows 4 billion let's say, and pays it back over time. Is there interest on that loan? If so, I can't see why countries allow themselves to get into debt any more than an individual does.

From my experience you get the whole lump in one go and yes there is interest.

NS & I are the company who basically issues the bonds on behalf of the government.

http://en.wikipedia.org/wiki/National_S ... nvestments

http://www.nsandi.com/index.jsp

Lucien wrote:I own a country, and borrow 1 Billion pounds from lex-man to build something. I owe him 1.2 Billion back and collect that money from my people. As there's less money in my country I have to print more, and I owe interest on that [if what I've been told is right]. That seems bad in the long term...

Yeah - but pretend that something is a "hospital".

It would take you 20 years to save up that 1billion (at 5% coupon/interest payments are saved instead of paid out)

20 years wait for a new hospital?

There's a huge arguement about when/why a country should borrow. I **think** it was Lab who said they'd "Only Borrow for Investment"

i.e. they'll borrow to build stuff, but not to pay benefits/salaries etc.

Lucien wrote:The confusing thing about this all is, I've been told the Federal Reserve in America prints the nations' money, and for every note it prints it expects it back with interest.

If that is true, then, well, here's an example...

I own a country, and borrow 1 Billion pounds from lex-man to build something. I owe him 1.2 Billion back and collect that money from my people. As there's less money in my country I have to print more, and I owe interest on that [if what I've been told is right]. That seems bad in the long term...

It's fine as long as productivity increases because then more money is made by your country each year and you can afford to pay your interest, but most capital in the world if you follow the trail back is dept. The whole world economy is based on the idea of borrowing if everyone in the world paid off their dept there would be barely any money.

Lucien wrote:

Hexxmas wrote:There's nothing wrong with debt - just look at the number of people who can only afford their homes through mortgages - as long as you keep it under control and manage your responsabilities.

That's a good point, I think mortgages are a bad idea myself though. If nobody had a mortgage homes would have to be cheaper, that or we'd have a LOT of homeless people.

That or most people would rent and who every owned extra houses would make a huge profit.

If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Lucien wrote:

lex-man wrote:

Lucien wrote:

Hexxmas wrote:There's nothing wrong with debt - just look at the number of people who can only afford their homes through mortgages - as long as you keep it under control and manage your responsabilities.

That's a good point, I think mortgages are a bad idea myself though. If nobody had a mortgage homes would have to be cheaper, that or we'd have a LOT of homeless people.

That or most people would rent and who every owned extra houses would make a huge profit.

People could rent at first, as in really pay in the same way mortgages work, until eventually they owned their house through time. Once they do they could pass that on to their family or sell it, but they wouldn't owe anyone anything. Of course then people might want to work less, and since we have debt to pay we can't allow that...

It's crazy a house that was built a long time ago, and has been paid for over time, can still not belong to anyone. As for people with second homes, in my ideal world that wouldn't be the case. I'd love to know enough one day to come up with a different proposal to what we have, maybe become a dictator.

That's basically the same thing as a mortgage except with no interest their would be no reason for the owner to actually give the house up because they might as well keep renting it.

Muslims have a similar deal where by they rent part of a house and slowly buy it bit by bit until you own the whole thing but it works out the same as having a mortgage.

lex-man wrote:Muslims have a similar deal where by they rent part of a house and slowly buy it bit by bit until you own the whole thing but it works out the same as having a mortgage.

Look. It's specifcially not like a mortage. Allah can't be angry if it's not called Interest, ok?


(Sidenote - I had to contact a client recently and tell him off - he'd put his Muslim clients into a fixed interest portfolio )

Lucien wrote:

Merry Christmas n00bs wrote:If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Really cheaply of course, because the needs of the many outweigh the needs of the few.

Enough to pay the mortgages, and leave a fund for any repairs that will come about, naturally.

Lucien wrote:I'm going to study the history of money and moetary issues soon hopefully [which will be a blast] so I can hopefully become the next Alastair Darling.

Um. He has no idea - he's a lawyer turned career politician.

About 2 years ago he was still Minister for Transport

By the way this is quite a good book to read to get an idea about how the finical world works. Although if you want to become a economist you really need to study it at degree level.

http://www.amazon.co.uk/Ascent-Money-Fi ... 608&sr=8-1

Merry Christmas n00bs wrote:

Lucien wrote:

Merry Christmas n00bs wrote:If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Really cheaply of course, because the needs of the many outweigh the needs of the few.

Enough to pay the mortgages, and leave a fund for any repairs that will come about, naturally.

You want to start off getting buy-to-let mortgages?

Now?

Yea, good luck with that.

Star-jo wrote:

Merry Christmas n00bs wrote:

Lucien wrote:

Merry Christmas n00bs wrote:If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Really cheaply of course, because the needs of the many outweigh the needs of the few.

Enough to pay the mortgages, and leave a fund for any repairs that will come about, naturally.

You want to start off getting buy-to-let mortgages?

Now?

Yea, good luck with that.

It's not going to be for a good 2 years or so before I get myself on a sound enough footing to be able to consider it.

Merry Christmas n00bs wrote:

Star-jo wrote:

Merry Christmas n00bs wrote:

Lucien wrote:

Merry Christmas n00bs wrote:If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Really cheaply of course, because the needs of the many outweigh the needs of the few.

Enough to pay the mortgages, and leave a fund for any repairs that will come about, naturally.

You want to start off getting buy-to-let mortgages?

Now?

Yea, good luck with that.

It's not going to be for a good 2 years or so before I get myself on a sound enough footing to be able to consider it.

Don't worry, it will be at least five before anyone will let you anyway!

Star-jo wrote:

Merry Christmas n00bs wrote:

Lucien wrote:

Merry Christmas n00bs wrote:If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Really cheaply of course, because the needs of the many outweigh the needs of the few.

Enough to pay the mortgages, and leave a fund for any repairs that will come about, naturally.

You want to start off getting buy-to-let mortgages?

Now?

Yea, good luck with that.

I would recommend getting a larger deposit and buying outright because you will pay less in the long run.

lex-man wrote:

Star-jo wrote:

Merry Christmas n00bs wrote:

Lucien wrote:

Merry Christmas n00bs wrote:If this job works out for me in the way I'm hoping for, I'm thinking of building up a property portfolio and renting out to people.

Really cheaply of course, because the needs of the many outweigh the needs of the few.

Enough to pay the mortgages, and leave a fund for any repairs that will come about, naturally.

You want to start off getting buy-to-let mortgages?

Now?

Yea, good luck with that.

I would recommend getting a larger deposit and buying outright because you will pay less in the long run.

If only more people knew.

Star-jo wrote:Don't worry, it will be at least five before anyone will let you anyway!

Yeah, that's probably about right.