A lesson from Vivaldi – MoneyWeek

ThecityshoweditsgratitudebyerectingastatueofVivaldiafewyearslaterinthePalazzoSanGiorgio。

Helookspleasedwithhimself,aswellhemight,giventhathekickedoffsomethingofatrend(somanyofGenoa’srichfollowedhisexamplethatstatueshadtoberationed),andthattodaypayingorgettinginterestoninterestisoneofthecornerstonesofourfinancialsystem。

InBritain,wecurrentlypayintheregionof£43bnayearininterestonour£1trn-oddofoutstandingdebt。

Thatdebtisrisingatabout£10bnamonth。

Soaround30%ofthenewdebtwetakeonispurelytopayinterestontheolddebt。

Thenwepayinterestonthenewdebt。

Interestoninterest。

Imaginewhatyourgrandmotherwouldsayifyouranyourpersonalfinanceslikethat。

Doesitmatter?

Thatdependson?

whoyouask。

GeorgeMagnus,ourintervieweethisweek,saysthatthecurrentabsolutelevelofdebtprobablydoesn’tmatter。

Aslongaswecankeepconvincingthemarketthatwe’reheadingintherightdirectionwithourdeficitreduction,andaslongaswhenwedobumpupspending,wemakeacleardistinctionbetween“gratuitouspublicexpenditure”andinfrastructureinvestment,forexample,weshouldgetawaywithit。

Hemightberightforafewyears。

Butcanthemarketreallyignoretheproblemsofcountrieswhosebasicfiscalstrategyistoborrowmoneytopayinterestoninterestindefinitely?

Vivaldi’ssinkingfundgavebureaucratsanincentivenottoraidthesurplusitcreated:hisrulesstipulatedthatthesecondtherewasanyevidencetheirsnoutswereinhistrough,themoneyrevertedtohisfamily。

Immediately。

Today,wedon’thavetheequivalentofgenerousmerchants–howmanyofourCEOsandtopbankerscanyouseechucking£10mintoacompoundingsinkingfundforthenationalgood?

Wealsohavenosuchbreaksonspending。

Ourgovernment,armedasitiswithacentralbankthathasmadeitclearitwillprintatwill,andaprettyfeeblecutsstrategy,isstilllittlemorethanamoney-spendingmachine。

Forus,compoundingisjustgoingtokeepworkinginthewrongdirection。

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