Do bond markets control the government?
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What is the main topic discussed in this episode?
Okay, welcome back to Gary's Economics. Today we are going to explain everything you need to know about bond markets. Okay, I know what you're all thinking. You're thinking, why is Gary wearing a vest? The reason is because it is incredibly hot in London. Now the elephant in the room has been handled. We can move on to the next thing that you're thinking, which is why is Gary not talking about Keir Starmer resigning and Andy Burnham becoming the next prime minister? And that is because we all knew that was going to happen like weeks and months ago. If you really want to know about that, you can watch my video from three weeks ago. Open that in a new tab and you can watch it afterwards. what we want to talk about today is i want to give a really good explanation of
something which is more important in a way, which is not the sort of the face who is in charge, but really the economic power that has been driving economics and politics in this country for at least about a year and a half, and which is going to drive economics and politics increasingly in basically every country in the world in the next sort of five, 10 years. And that is bond markets. Bond markets have been tremendously badly covered in the media, almost comically bad. My favorite moment of absurd media coverage of the bond markets is this from The Guardian last year. YouTube radicals such as Gary Stevenson act as if John Maynard Keynes had never been born. Without a wealth tax, the UK will soon go bankrupt, he warns, an unlikely thing to happen in one of the richest countries in the world with its own money printing press.
Traders are about to bring down the government, he told Guardian readers in January. Ten months later, we await the excitement. That is Aditya Chakraborty hilariously failing to recognize that the bond markets have been basically in charge of his government for about a year and a half. We'll get back to that. But first, we need to explain what is a bond. Alright so I want to really break this down like from absolute basics so you really really understand the bond markets government bond markets and we have to start with what is a bond. The most important thing to understand if you want to be clear about this is very very simple a bond is a loan. I think that is the first thing if you replace the word bond with a loan it's going to make everything much easier to understand.
The government borrows a lot of money and it borrows that money using bonds. A bond is a loan. The government borrows money from largely wealthy people, also things like pension funds, and it calls those loans bonds. The only difference between a bond and a loan is you can sell a bond. So, for example, if I lent Jack £100, he gives me like a iou uh jack owes me 100 pounds and i can sell that to dave for 90 pounds and then jack goes dave 100 pounds so a bond is literally just a loan but we can sell it we can transfer it between each other The reason these are important is because governments all across the world borrow really an enormous amount of money. Whenever the government wants to spend money on things like education or healthcare or pensions or things like
investment like building a new bridge or a new train line or a new road or a new hospital it broadly has two ways to cover that spending it covers most of its expenditure through taxation but when it has big payments to make like for example especially when we have big crises like 2008 or like COVID, or perhaps when governments want to make big investments, they tend to borrow the money to do those things. Over the years, especially because of the many recent economic crises, governments have been borrowing more and more and more money. The total amount of UK government debt is roughly equivalent to about 100% of GDP, so equivalent to roughly everything the country produces in a year, that comes out at about £43,000 per person.
So your share of the government debt is £43,000 per person. That's not per adult, that's per person. So if you've got like a newborn child, he owes £43,000, he or she, obviously.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–4:19
2
What are bond markets and why are they important?
4:19–12:43
3
How does government borrowing work through bonds?
12:43–33:59
4
What role do interest rates play in government debt?
33:59–1:00:48
5
How does inflation impact government debt management?
1:00:48–1:01:12
Speakers
1 identifiedMore from Garys Economics
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