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    The government is trying to pay off the national debt at record breaking speed because its bad.

    At the same time, graduates will be saddled with debts of tens of thousands of pounds which they will have to pay off over a long time.

    Why is the former bad but the latter good?
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    I'd say it was the other way around
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    If people thought the student debt was good, there wouldn't have been protests, surely?

    There is a difference between an "acceptable evil", and "good".
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    Is this a false dichotomy? I think I'm probably completely wrong.
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    It's not the debt per se, but what the money was borrowed for.

    In a nutshell:
    Borrowing to invest = good
    Borrowing to consume = bad

    This is one of the reasons that aggregate consumer credit card debt is a BIG worry on the private debt front.
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    Debt is not inherently bad. it's just pop culture that says so. It simply depends on how large it is relative to income. in that sense, debt is bad, whether private or public.

    UK national debt is not even that high in international terms, despite the borrowing to finance the bailouts. In a few years, once the cuts to public spending have passed, it will return to normal levels.
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    Public debt is not 'bad' and private debt is not 'good'.

    Debt is just the opposite of saving. You can't save without having someone who wants to borrow. If I want to save £10000 and you don't have a need for it, you're hardly going to pay me interest on it!

    So its misleading when people say things like we need a society built on saving not on borrowing, there has to be equal saving to borrowing. Where debt is bad is when one party has debt that they can't, or won't repay, because that means whoever saved, has lost their savings.

    During the 2000s, which was ironically the golden age of good times for the banking sector, the banking sector got into a lot of debt. Big banks accumulated huge levels of liabilities that they could only meet by having access to short term and overnight borrowing, to cover other obligations that were due. What really killed the banking sector was when this short term borrowing dried up (hence Northern Rock being the first one to topple) and when they found out that a lot of their assets were actually securitised packages which were based on defaulted debt, and so were worthless. As a result the banking sector (rightly) realised that it had to reduce its levels of debt, so debt in the private sector was reduced. When that happens, debt in the public sector increases, because the governments took on that debt. Hence the global and especially Eurozone fears moved from a financial sector debt crisis (2007-2009) to a sovereign debt crisis (2010-11).

    Now the argument that is often used is that "well the problem was, governments were accruing debt in the good times, which made the problem worse now". Yes that is true, but the real debt problem was that the banking sector managed to accrue unsustainable debts in the best time ever for the financial sector!

    If we want to reduce public debt, then it will either have to be taken on by the private sector again, or people will just have to consume more and save less. Imagine if the government just paid off its debt and didn't borrow again. All those pension funds etc which own government bonds as a safe form of investment, would get the bonds redeemed but what then - they want to invest in something else, and if they can't but more government bonds they would just have to buy shares or other private sector forms of investment. What happens if the private sector doesn't want to borrow enough to cover the reduction in government borrowing? Then there's no option for saving, simples.

    Saving is the supply of loanable funds, borrowing is the demand for loanable funds. When there is a lot of supply and little demand then interest rates will be low and so there will be no way of getting a decent return on an investment.
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    (Original post by MagicNMedicine)
    Public debt is not 'bad' and private debt is not 'good'.

    Debt is just the opposite of saving. You can't save without having someone who wants to borrow. If I want to save £10000 and you don't have a need for it, you're hardly going to pay me interest on it!
    That might be true for the world as a whole, but clearly any one country and its citizens can have net debt or savings with respect to the rest of the world. When the government sells bonds, it is not only to UK savers but to foreign investors. The net effect is a transfer of wealth out of the country. Whether or not there is a net benefit of borrowing the money depends on whether it is used to generate sufficient growth to cover the interest.

    If we get ourselves in a situation where the cost of servicing our debts to the rest of the world exceeds the growth in our income, then we become poorer. Whether or not that is the case depends on how you value our assets versus our liabilities.
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    (Original post by Maker)
    The government is trying to pay off the national debt at record breaking speed because its bad.

    At the same time, graduates will be saddled with debts of tens of thousands of pounds which they will have to pay off over a long time.

    Why is the former bad but the latter good?
    This is one of the dumbest anologies I have ever heard. Every day I read stupid threads like this that make me lose what little sympathy I had left for students.
    We get it you're going to be paying more for your degrees. Boo hoo dry your eyes.
    When you're earning £50k a year and your paying me to lick your shoes clean because I didn't go to uni and my GCSE's spell fudge, let's reflect who got the better deal out of life.
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    (Original post by Maker)
    The government is trying to pay off the national debt at record breaking speed because its bad.

    At the same time, graduates will be saddled with debts of tens of thousands of pounds which they will have to pay off over a long time.

    Why is the former bad but the latter good?
    I'd say that whether debt is "good" or "bad" depends on what you plan to do with the money you've borrowed, and how exactly you're expected to pay it back.

    If you're investing the money you've borrowed into something which is likely to give you a large return, then debt is good. For example, each time you put money into the bank, the bank is "in debt", because they have borrowed money from you. But it's a good kind of debt - they're making a profit from it by investing it. They can return the money to you at any time when you turn up at the cash machine, but they've still made money themselves as well.
    Whereas if you're borrowing money just to blow it all away on something, then debt is bad, because you're going to have difficulty in paying the money back. For example, if I borrow £100k to buy myself a Ferrari, then I won't be making a profit, I'll be making a loss. The car will be decreasing in value rapidly as time progresses, and I haven't really found any way to give the money back.

    If you borrow money, but are expected to repay it back at an extremely high interest rate, then debt is bad. You have to pay back significantly more than you borrowed, and so you're making a loss. Whereas if you borrow money, but under certain conditions you might not have to pay it all back, or if the interest rate is much lower than the profit you'll be making by investing the money etc. then debt is good, because once again you're making a profit.

    This is the reason why national debt is "bad" while student debt is "good" (Of course it's not as good as getting a free university education, but it's still better than not taking out a student loan and being unable to go to university as a result).

    The money you receive from a student loan is invested in a university education, which will usually result in a higher paying job than you would have otherwise had. And the rate of repayment is designed such that it doesn't exceed the extra money you make from your graduate job. So in total you're financially better off if you go to university with a student loan than if you don't (or at least, you're no financially worse off).
    Whereas the money that was borrowed resulting in national debt hasn't been invested particularly well, and interest is always building up as well. The government is going to be financially worse off if they do not pay it off quickly.
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    (Original post by Mbob)
    That might be true for the world as a whole, but clearly any one country and its citizens can have net debt or savings with respect to the rest of the world. When the government sells bonds, it is not only to UK savers but to foreign investors. The net effect is a transfer of wealth out of the country. Whether or not there is a net benefit of borrowing the money depends on whether it is used to generate sufficient growth to cover the interest.

    If we get ourselves in a situation where the cost of servicing our debts to the rest of the world exceeds the growth in our income, then we become poorer. Whether or not that is the case depends on how you value our assets versus our liabilities.
    I agree with this and I do advocate fiscal responsibility. However looking on a global perspective I don't see strong evidence that the 'small state' economies are the ones who have the best fiscal positions, apart from places like Saudi Arabia who are oil rich.

    In Europe for instance the Scandinavian countries and Germany have either got surpluses (Norway is running +9.4% of GDP) or small deficits which are below their growth rates. These countries have all got advanced welfare states and high quality levels of public services. It's financed basically by taxation revenue. On the other hand you have countries like Greece, Ireland and Portugal who have tried to replicate these state commitments but they've not been collecting the revenues in tax so it's been financed by borrowing.

    Now I understand the argument which is often used, which says if you cut tax rates you attract investment and so you can improve your overall tax take, but the empirical evidence doesn't suggest that approach works in practice or at least it has not been done well, because countries like US who market themselves as bastions of free enterprise are regularly high net borrowers.

    I don't know the ins and outs of the tax regimes in those Scandinavian countries however it does seem like their higher tax takes are spread around the population, including high levels of VAT, rather than trying to specifically target groups ie corporations/the super rich. I think if we are thinking outside the box, it may not be popular, but when the economy starts to recover a bit, in terms of setting ourselves on a more sustainable footing I would look at creeping VAT up here as well, and widening the base on which VAT is collected. If we had VAT of 22.5% with fewer exemptions it would no doubt cause outcry at first, but it would put a higher stream of revenue coming in to the coffers which would reduce the need for borrowing.
 
 
 
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