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Where's the 10 billion coming from?


Guest pelmetman

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Guest pelmetman

As I understand it the country is on its uppers :-S....................Yet we seem to be able find 10 billion to bail out the Euro countries 8-)..........

 

I assume we must be borrowing this money from someone to lend to the IMF.......so we will be paying interest on the loan?..........hopefully we will get a better interest rate from the IMF?

 

Now this might seem like a dumb question...............Why doesn't the IMF borrow the money from who ever we will be borrowing the money from? :-D.................Its a win win...........we don't get another 10 billion of debt, and the IMF get the money at a cheaper rate, and will therefore be able to lend the the money at a cheaper rate, which would help the PIGS :D

 

SIMPLES ;-)

 

 

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pelmetman - 2012-04-21 8:25 AM

 

 

 

I assume we must be borrowing this money from someone to lend to the IMF.......so we will be paying interest on the loan?..........hopefully we will get a better interest rate from the IMF?

 

:D

 

SIMPLES ;-)

 

 

 

 

Nope. We are not borrowing it.

 

It's coming from U.K. reserves.

 

( I think that may me 'code' for the cabinets' own personal savings accounts).

 

 

;-)

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If indeed it is coming from the UK's reserves, perhaps we would be better paying off the loans we have and reducing the interest we have to pay. No wait perhaps instead of borrowing money we should use our reserves first then borrow if we need too. And if we do need any cash we could go to the IMF for a loan and borrow it back. Its a bit of a conundrum. No Ive got it lets put our own house in order then when we are sorted we might help the other lame duck countries out note i say might.
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I always thought that our 'reserves' were for times of unexpected national crisis when loadsa money is needed to repair natural disaster damage - or to start another war in some far flung country that nobody really cares about?
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malc d - 2012-04-21 9:17 AM

 

Nope. We are not borrowing it.

 

It's coming from U.K. reserves.

 

( I think that may me 'code' for the cabinets' own personal savings accounts).

 

 

;-)

 

So we still have money stashed away somewhere :-S...................yet we borrow money?............and pay how much interest?..............Hmmm (?)

 

 

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pelmetman - 2012-04-21 10:43 AM

 

So we still have money stashed away somewhere :-S...................yet we borrow money?............and pay how much interest?..............Hmmm (?)

 

 

I sincerely hope so Dave!

 

To me it makes good housekeeping sense to have reserves for a rainy day and indeed for many years when we had a mortgage we always kept rainy day money handy to cover emergencies even twhen the interest was a lot less than we were paying on the mortgage.

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Tracker - 2012-04-21 11:00 AM

 

pelmetman - 2012-04-21 10:43 AM

 

So we still have money stashed away somewhere :-S...................yet we borrow money?............and pay how much interest?..............Hmmm (?)

 

 

I sincerely hope so Dave!

 

To me it makes good housekeeping sense to have reserves for a rainy day and indeed for many years when we had a mortgage we always kept rainy day money handy to cover emergencies even twhen the interest was a lot less than we were paying on the mortgage.

 

So why are we giving it away for some other countries rainy day ;-).................When it seems to be p*ssing down here, judging by the state of the countries finance's ;-)..........

 

Or are we just financing our politicians ego's again 8-)

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pelmetman - 2012-04-21 12:20 PM

 

 

 

 

So why are we giving it away for some other countries rainy day ;-).................

 

 

 

We're not " giving it away " Dave - we are lending it to the IMF - and will earn interest on it.

 

You really must try to keep up.

 

(lol)

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malc d - 2012-04-21 12:32 PM

You really must try to keep up.

 

The joy of being retired is that you no longer have to keep up - so don't be too hard on him while he gets some practice!

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malc d - 2012-04-21 12:32 PM

 

pelmetman - 2012-04-21 12:20 PM

 

 

 

 

So why are we giving it away for some other countries rainy day ;-).................

 

 

 

We're not " giving it away " Dave - we are lending it to the IMF - and will earn interest on it.

 

You really must try to keep up.

 

(lol)

 

So... not wishing to be pedantic Malc :D....................As we are borrowing money from someone else? to pay our bill's...............and presumable paying interest at X amount interest? ;-)................How much interest are we getting on our reserves when compared to the interest we are paying by borrowing from someone else?.............or do we borrow from the IMF as well? :-S

 

Just curious....................as I saw a program about loan sharks ;-)................and I'd hate for my country to get involved with them :D

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pelmetman - 2012-04-21 5:39 PM

 

malc d - 2012-04-21 12:32 PM

 

pelmetman - 2012-04-21 12:20 PM

 

 

 

 

So why are we giving it away for some other countries rainy day ;-).................

 

 

 

We're not " giving it away " Dave - we are lending it to the IMF - and will earn interest on it.

 

You really must try to keep up.

 

(lol)

 

So... not wishing to be pedantic Malc :D....................As we are borrowing money from someone else? to pay our bill's...............and presumable paying interest at X amount interest? ;-)................How much interest are we getting on our reserves when compared to the interest we are paying by borrowing from someone else?.............or do we borrow from the IMF as well? :-S

 

 

 

Frankly Dave, I have no idea.

 

.... and if the government told me, I wouldn't believe them.

 

 

;-)

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malc d - 2012-04-21 5:48 PM

Frankly Dave, I have no idea.

 

.... and if the government told me, I wouldn't believe them.

 

 

;-)

 

Found this Malc :D

 

Government debt (also known as public debt, national debt) is the debt owed by a central government. By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year, that is, the increase of debt over a particular year.

 

Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions.

 

As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Sovereign debt usually refers to government debt that has been issued in a foreign currency. Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid.

 

It's alright Malc they borrowed it from us :D...................So now we pay interest on the money they borrowed from us 8-)............................ 8-) 8-) 8-)

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Found this aswell............2009........ but it seems like the bank of England is one of the biggest buyers of our own debt :-S.........................but the biggest buyer is pension funds?.......which probably explains why our private pensions are crap.....

 

By Anthony Reuben

Business reporter, BBC News

 

The amount the economy grew in the last three months of 2009 has been revised up from 0.1% to 0.3%.

Even the first estimate, that it had grown a miserly 0.1%, was enough to take the country out of recession.

So why does this 0.2 percentage point change matter?

In large part, because of two key effects on the country's debt position.

Firstly, if the economy is not growing, the amount of tax paid to the government will not grow, which means that the amount it has to borrow to fund its spending programmes will increase.

Figures released last week showed that the government borrowed £4.3bn in January, which is usually a month when bumper corporate tax receipts mean that it does not have to borrow any money.

Secondly, the UK does not want to get a reputation as a weak economy, because that would increase the interest rate it has to pay to borrow money.

It is the same as an individual trying to take out a loan from a bank: if the bank is absolutely confident that the individual has enough money coming in to pay back the loan then it will charge a much lower interest rate than it will for somebody it is a bit less sure about.

In the case of the country as a whole, the way it borrows money is by issuing gilts, which are IOUs, promising to repay an amount of money on a particular date and a specified interest rate until then.

Gilts are sold at auction, so the government does not know how much money it will be paid for each gilt or who will buy them.

 

 

The biggest owners of gilts are insurance companies and pension funds.

For them, gilts are predictable investments, which are particularly useful when a low-risk product is needed.

Pension funds, for example, will usually switch an individual's holdings from higher risk investments, such as shares in companies, and put them in gilts as the person gets closer to retirement.

Next on the list comes investors overseas. Unfortunately, nobody keeps records showing in which countries these gilts are held.

This is in contrast to, for example, the US, which regularly publishes lists of the countries that own its Treasury Bills. So we know that at the end of 2009, $302.5bn (£196bn) of US government debt was held in the UK, making the UK the third-biggest investor behind Japan and China.

Anecdotally though, it appears that much of the growth in overseas investment in gilts in recent years has come from other central banks buying them as part of their foreign currency reserves, as all gilts are sold in pounds sterling.

The next biggest category holding UK government debt is banks, which includes the Bank of England.

Since March 2009, as part of its quantitative easing programme, the Bank of England has bought just short of £200bn of gilts, making it the third-biggest holder of UK government debt.

 

 

As well as helping the Monetary Policy Committee to fulfil its inflationary aims, the quantitative easing policy has helped to stoke demand for gilts.

In the graph above it is clear that most of the growth in demand for gilts has come from the banks category, and within that category, almost all the demand has been from the Bank of England.

The Bank has now suspended its quantitative easing programme, but the government needs to borrow a great deal of money in the coming year.

The investment managers Threadneedle estimate that the Debt Management Office, which sells gilts on behalf of the government, is having to sell £18.75bn of gilts a month to meet funding requirements.

The question now is who will step in to buy all these new gilts now that the Bank of England has withdrawn from the market.

There are concerns that demand for gilts could decline ahead of the general election, amid worries that a hung parliament could get in the way of forming plans to reduce the country's deficit.

Also, there is a danger that inflation and a weakening pound could reduce the value of overseas holdings.

The government counters that there is plenty of demand for gilts and that there are still plenty of investors snapping up UK government debt at its auctions.

Nonetheless, the key issue remains confidence, and that is why there is so much attention paid to the minutiae of the economic growth figures.

 

Dumb question........................Why do people buy someone else's debt 8-)...................Or more importantly why do we buy our own debt :-S

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Guest Peter James

Interesting Dave, Thank you.

I don't have all the answers, but I know all this buying and selling is good for the spivs in the city who bankroll the tory party, and provide lucrative jobs for ex politicians. Having to pay to change our money bacwards and forwards from pounds to Euros is easy money for them. (Suits Her Unelected Majesty THe Queen too, who is keen to keep her face on our money)

The last I heard, people were buying 10 year sterling gilts at 2%. This is clearly a very inflated price when banks are offering retail investors fixed interest accounts at 4.5%. Some institutions like Insurance companies and banks are legally forced to hold them as reserves - in case of insurance claims or the banks borrowers defaulting. The fact that they are denominated in sterling that is at risk of inflation doesn't matter in this respect, because their potential liabilities are in sterling. By printing money to buy them the Bank of England has artificially inflated the price of these gilts.

So much of the British economy is dependant on the housing market. By restricting the supply of housing through green belts etc, the government has forced up prices. This has been politically popular as people feel better off when their house is worth more, even though they are not because they cannot sell it. The beneficiaries have clearly been wealthy landlords at the expense of the poor. Money that should have gone into productive industry has been used to buy property instead, because property has been a better investment, leading to a decline in Britains manufacturing industry. Even now, with the Bank of England printing money like lunatics, small businesses cannnot get loans because property is seen as a better investment due to the restricted suppy. In the long term, we need to bring property prices back into proportion with the rest of the economy. But the banks that have been bailed out by the taxpayer are worried that a fall in property prices would lead to borrowers going into negative equity and defaulting on their loans. So the government is desperate to maintain property prices to stave off the worst of the crisis until after the next election.

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Usually the system works well with Government Gilts being the rock solid bedrock of things like annuities where a specific return has to be secured over a long period of time. Gilts are what the UK issues and they are the same as Government Bonds from other countries – the reason why we call them Gilts is because the paper they were issued on had a Gilt Edge to denote quality from the UK Government – Hence the term Gilt Edged Stock.

 

When a Government wants to raise cash it issues a “gilt” or Government Bond. When a Company wants to raise capital it also issues a Bond but these are called Corporate Bonds. Both Gilts/Gov Bonds and Corporate Bonds are in the “Fixed Interest” sector.

 

As I say – the system “usually” works well but is under considerable strain at present. The main reason is QE or Quantitive Easing. QE is used when the Central Banks have little room for manoeuvre.

 

If we assume that a central bank wants to fix that countries interest rate plus or minus 2% (+/- 2%), so when the interest rate is 6% the acceptable range that exists would be 4% to 8%. This range is about what most countries need to fine tune their economies to reduce rates when growth slows and needs a boost and increase rates when the economy starts to overheat. When the possible variables are always in the positive range it works quite well.

 

The problem we have at the moment is that if we assume a range of +/- 2% is preferable – how does that work when our BoE base rate is 0.5%?

 

The Bank of England can hardly set interest rates at minus levels – who wants to put £100 in their account and have £99 a year later? - so what happens is they simply apply minus interest rates by QE which is where huge amounts of cash are injected into the economy by basically printing money so that the reality is that our currency is worth less. The danger of course is that taken too far the currency becomes worthless (what a difference a space makes!)

 

So QE is where your £100 remains £100 as a numerical unit – but it is now not a valuable as it was a year ago because there are more £’s in circulation. Add to this inflation (which QE exacerbates) and you can see we have the makings of a serious problem. The PIGS have this problem with a vengeance.

 

This is why annuity rates are tumbling, this is why inflation is circa 5% but high street deposit interest rates are half that if you are lucky.

 

If you want a bit more info on how Government debt can be used to your advantage – have a look at a typical Gilt & Fixed Int. fund – I have selected M&G as they are part of the dear old Pru and run a tight ship. Tho’ for obvious reasons this is not a recommendation – I cite this fund purely for illustrative purposes.

 

But look at the link – look at the return over 5 years, 3 years and 1 year.

 

Anyone looking for a better than high street interest rate return would do well to consider this sector – after all if the Government is going to raise capital to lend to others – you may as well benefit from their so doing!

 

BIG WARNING THO! – do keep an eye on it – as soon as the BoE base rate climbs and high street rates start to as well you will need to bail out.

 

Look at the fund fact sheet and you will see Treasury Stock listed – some are old ones with an 8% rate. Others are much less – e.g. - TREASURY 2.75% GILT 22/01/15 GBP

 

This means the interest rate is 2.75% and this is a short gilt whereby the capital lent to the Government will be repaid on the 22nd Jan 2015. So whilst the BoE base rate remains at less than 2.75% this is one to keep. But if base rate reaches 3% before Jan 2015 then the net return on this Gilt will be negative and so less attractive and so the “Running Yield” on the fund (for the last 12 months a very worthwhile 12%!!!) will fall.

 

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=MGGTI&univ=U

 

What a shame the 8% one ends in 2013!!

 

So these funds are not ones to stick in your ISA and forget about – you either need to keep tabs on your funds yourself or take advice. Either way - choose an investment wrapper (ISA is good) with free fund switching.

 

And watch out for most High Street providers – because they don’t.

 

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Guest Peter James
pelmetman - 2012-04-22 4:16 PM

 

Love the new Avatar Peter ;-).........................very tasteful :D

 

I've just got back from the Health Farm ;-)

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Colin Leake - 2012-04-24 11:00 PM

 

The Government seem to be doing their best to get as much of it as they can from me!

 

Sorry Colin ;-)......................that'll be my fault as I don't pay any now :D

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CliveH - 2012-04-25 8:38 AM

 

Apart from Fuel tax and VAT (lol)

 

True enough Clive *-).....................but fortunately, I only do a fortnightly delivery run............and my material costs are very low :D................and not forgetting........ I'm a professional skinflint (lol)

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Do watch you tax codes - we are seeing more and more mistakes from HMRC. We ourselves were told that we had not submitted our Partnership return when we had and HMRC wanted to fine me and SWMBO £100 each.

 

We proved that we had submitted it on time and we got a letter saying that on this occaision "our appeal had been granted" and that the £100 fine each had been removed.

 

Baring in mind that this was not an appeal but my pointing out that they had made a mistake makes me think this is possibly a way by which HMRC is hiding the number of such mistakes it makes.

 

And then yesterday we have two letters arrive from HMRC saying that we have not submitted our Partnership return (when we have already proved that we have) and that this time they want to fine us £10 (ten GBP) each. Not £100, but £10.

 

I have no idea what is going on in their heads as the fine for late return is £100 per person.

 

So now another letter goes today pointing out that the this has been dealt with and asking for an explanation of why they are now saying a £10/person fine is being applied.

 

Still I supose it keeps them busy

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