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View Diary: Guess Who’s America’s Largest Creditor (Hint: It’s NOT China) (160 comments)

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  •  Quite (4+ / 0-)

    It was a change in the calculation that required the Blair government to introduce measures. Gordon Brown was told that local government spending on building housing could not be "off the books" As a consequence, lending restrictions meant virtually no social housing was built by them for years - leading to a housing crisis for the poor in some areas like London today.

    Instead of allowing local authorities to lend to build, they backed non-profit Housing Associations who did not need to be included. They also had legislation requiring the LAs to upgrade their housing stock to higher standards of insulation etc. That in turn meant the councils had to sell much of their stock to the Housing Associations who could borrow the money to do this.

    In general, capital expenditure is good but revenue expenditure paid for by lending is bad - the US position.

    If you add that $2.9T to the figure in the diary, it takes the US debt/GDP ratio to 112%. That can be manageable with the current historically low interest rates but every 1% rise in interest rates means the US has to pay >1% of its GDP just to service the debt, without paying anything off. Governments have been borrowing at the lower rates in order to buy back their bonds and pay off capital borrowing that was taken out when interest rates were much higher.

    "Balanced" budgets usually mean balancing current revenue expenditure, including interest payments, but not paying back capital borrowing.  The crunch comes when long term borrowing like government bonds matures and you have to re-finance at a much higher rate. That was the stage at which countries like Ireland, France, Italy, Spain and, especially, Greece came near default and some had to be bailed out by the IMF, World Bank and ECB who lent the money at much lower rates than they would had to have paid in the money market.

    "Come to Sochi, visit the gay clubs and play with the bears" - NOT a Russian advertising slogan.

    by Lib Dem FoP on Mon May 26, 2014 at 06:41:56 AM PDT

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    •  Ugh. Greece, etc.... rent the Euro. Thus, they (4+ / 0-)
      Recommended by:
      Elwood Dowd, JesseCW, trkingmomoe, ozsea1

      are at the mercy of bond vigilantes.

      The UK and America have a monopoly on their currency, and like all monopolists, they are a price setter, not taker.

      Greece, etc...  are in fundamentally different positions.

      Currency user vs currency issuer.

      •  They're not at the mercy of bond vigilantes (0+ / 0-)

        The EU taxpayer made the bond holders whole a long time ago. Their debt is owned by the ECB and Europe.

        There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

        by upstate NY on Mon May 26, 2014 at 11:23:58 AM PDT

        [ Parent ]

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