Bellerbys Economics - Mr Stephenson

Saturday, May 13, 2006

Shhh! Don't Tell the Americans!

During the Great War 1914-18, the economic system in Europe collapsed leading to revolutions all over the place - Germany, Russia and so on.

The British government kept going and avoided revolution by borrowing money from the Americans - at a very low interest rate in fact - about 2%. Rather cleverly, we then passed on quite a large percentage of this money to other countries as loans (at a somewhat higher rate of interest of course!). After the war, we had to pay the Americans interest on these loans and we continued to do so until the 1930s.

Then the western economies collapsed again. There was complete confusion. Many of the countries who had borrowed money from Britain stopped paying it back to us (except Finland strangely, who paid off all their debt) - so we did the same to the Americans - just stopped paying. They weren't very happy about it but then the second great war came (1939-45), other priorities became more important - and the whole thing was forgotten.

Except that no one has ever actually cancelled the debt.

Technically, with interest etc, the UK now owes the USA about £250bn. A ridiculous figure - much more than it could ever hope to pay. Nothing has been paid towards this debt, you see, since 1934 - it's just got bigger and bigger - hardly anyone knows about this debt anymore - except me and you that is - it's our little secret!

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