Question about all this debt we all have.

I like in the UK and I am constantly hearing how we are all in debt by about £20K per person as a result of the recession and bank bail out etc.
My question is who do we owe the money to?

My guess would be that the govt borrowed the money from the Bank of England rather than just print new money (which they call quantitative easing). Perhaps this way they can avoid excessive inflation in the future.

But that is only my guess, what’s the straight dope?

The British government issues bonds, often referred to as “gilts” (because the bonds used to have a little gold strip around the edge). When you (or anyone else) buys one, in effect, you’re lending the gov’t money, in exchange for the assurance it’ll be paid back in the future with interest. So, when the news talks about gov’t debt, that’s generally what they mean.

You can get more information about gilts, here:

http://www.dmo.gov.uk/index.aspx?page=About/About_Gilts

So the British Govt issue gilts to pay for the bank bailout?
If so, who purchased the gilts? In other words, who is the ultimate creditor?
I heard that a lot of institutional investors pulled out of riskier assets, presumably into low risk assets like gilts. Does that mean all the money came from insurance companies and such?

Here’s the most recent report:

http://www.dmo.gov.uk/documentview.aspx?docname=publications/quarterly/jul-sep09.pdf&page=Quarterly_Review

The majority of gilts are owned by insurance companies and pension funds, followed by overseas investors.

But you can buy gilts yourself, either through your broker, or directly from the DMO.

China is holding most of the bonds. Its the only country left that has any real money. In other words the Chinese have the West by the balls. The US owes China well in access of 800 billion dollars. And, most importantly, has no way of paying it back. In fact the borrowing is continuing at an ever increasing rate!

Most of the politicians in Western Europe and the US have plunged their countries into so much debt that it will only be paid back by inflating the currency.

This is why Hillary Clinton went to China some months back. She wanted to assure them that the US wouldn’t monetize its debt. In other words, print money like crazy and destroy its value, but the West has no choice. There is no way the governments can stop their wild spending. The politicians have promised their constituents far more than they can deliver.

This is absolutely untrue. It’s a scare tactic that’s used to short-circuit rational debate about spending policies.

http://en.wikipedia.org/wiki/United_States_public_debt shows debt in absolute dollars and as a percentage of GDP for the US. We owed more money (as a percentage of GDP) in the 40’s and 50’s. Inflating the currency was not necessary to maintain that debt then and we’re clearly still here and making payments on it all.

From what I’ve seen, the US could pack on another $10-20 trillion in debt before anyone in the world financial community would be terribly concerned about our ability to repay. The real debate is not whether we can borrow/repay more debt, but whether we should.

For the OP, you can use the same Wikipedia article to get an idea of who owns US treasury bonds. One of the things to note is that about 3% of US debt (7% of the 44% held by foreign owners) is held by the UK. There are economic reasons regarding currency exchange and foreign trade for countries to have reserves in the currencies of other countries.

If by “most” you mean less than a quarter of foreign ownership of US bonds, true. Otherwise not.

Total foreign ownership of gilts is around 30%, so it can’t be true that China owns “most” of them, either.

By ‘China’ do you mean the Chinese government? What percentage of UK gilts are owned by the Chinese government?