What they don’t tell you about the debt crisis

When you hear Cameron and Osbourne pontificating about the national debt mountain and blaming Labour for the massive amount of money owed do you ever wonder – just who do we owe this money too? This very pertinent question seems to be side-stepped most of the time so I’ll tell you – it’s us! You might imagine the government trawls the global money markets looking for cash but it doesn’t work like that. The government issues bonds known as gilts and 75% of the near trillion pounds debt pile is held in the UK by pensions funds, insurance companies and even individuals. Around a fifth of this, £200bn, was pumped in by the Bank of England who created this cash ‘ out of thin air’  – it was never printed money though, it was created electronically to buy gilts and corporate bonds.  So, the government doesn’t actually owe this £200bn money at the moment – when the time is right the quantitative easing will be unwound ie sold back to the marketplace.

Good news eh?  SORRY ITS MUCH WORSE THAN THAT.

There is much confusion over the figures bandied about by the Bank of England, the Office for National Statistics and the Debt Management Office.  The figures don’t include the trillion used to bail out banks, £103bn held in National Savings, state pension requirements , public sector pensions, PFI and Network Rail debt.  All this combined with household debt all adds upto around 5 trillion.

So, although the figure the government uses to determine debt , the money owed on bonds, is around one trillion, it doesn’t tell the full story. And by the way this figure represents 58% of GDP,  historically not that big as it has been on many occasions.   Any clearer?

Latest: A Bank of England spokesman has just told me the bonds they bought are a government debt but will be sold on the market. Work that out.

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