To whom do we owe this money, exactly?

By Alex Andreou / @sturdyalex

I have followed the political debate about the austerity programme of cuts relatively closely over the last few months. I have been witness to countless television and radio debates in which the importance of our credit rating status, so that we may borrow money on better terms, is repeated with military-drummer-like regularity; in which any possible criticism of the assault currently under-way on public services is met with lachrymose alacrity by three words “our national debt”.

Equally, I have been amazed by the rarity of the question “to whom do we owe this money?” It is a fairly esoteric subject, but an important one nevertheless – don’t you think?

Let’s take Cameron, Osborne and Clegg’s (sounds like a posh accounting firm, does it not?) puerile analogy of “households in dire trouble” and “maxed out credit cards”. In that situation the first thing I would do would be to sit down and list the entities to whom I owe money; a list of creditors. Only such a list could give me an overview of which are the high interest loans I can pay straight away, whether any restructuring were possible, who would be happy to wait a bit. Is there such a list? If there is, I haven’t seen it. I could not find it on the websites of the OBR, Bank of England, IMF, ONS, or the rather elusive Office of Debt Management (“ODM”).

I will take an analytical leap. It’s a short leap, so bear with me. Governments are very good at hanging bells on figures that help their cause. It is my assumption, and I think it is a fair one, that when things are difficult to find, it is because they are rather inconvenient.

So, I continue to endlessly trawl through information trying to find an answer, but with no success. Instead, I find titbits of aggregated data which only give rise to more questions.

A list of countries by external debt, compiled from the CIA’s World Factbook, makes fascinating reading. I find the figure at the top of the list jaw-dropping. It is a total figure for “the World”. According to this total, the “World” is in external debt to the tune of just under 60 trillion US dollars. Or 95% of the entire world’s GDP. Go back and read that again. How can this be? Is there an alien entity lending US dollars that I know nothing about? Or is the world in debt to private individuals, so isolated and untaxable that they do not count as part of the GDP of any country? Is the fact that, looking down the list, the lowest figures (or unlisted figures) are all totalitarian regimes or tax havens, important?

Next, I found this excellent analysis of US debt, by Mike Hewitt (an economist that until a few years ago was a high-ranking official with NATO). He found that, looking at US external debt, the biggest single creditor by a clear country mile was Japan. Japan itself has one of the largest external debts as a percentage of GDP. One of its main creditors is (you guessed it) the US. An analysis of US debt from 2001 to 2006, shows that the group most in debt (about double the next contender) was “Private Households”. Next were “Federal Government”, “Non-Farm, Non-Corporate Business”, then “Non-Financial Corporate Business”. Banks or Financial Businesses do not even appear on the top ten of debtors. The top four creditors (groups of entities to whom the US owes this money) were “Foreigners”, “Commercial Banks”, “Insurance Companies” and “Federal Reserve”. The same financial sector that the US went further in debt to rescue two years later. Perhaps we are not all in it together.

Next, the BBC piece “Who owns the UK’s debt” by Anthony Reuben. Reuben explains: “In the case of the country as a whole, the way it borrows money is by issuing gilts, which are IOUs, promising to repay an amount of money on a particular date and a specified interest rate until then.” These gilts are issued and auctioned by the ODM. So tracing who buys them, should reveal who owns our debt. Here you are:

So, the majority are owned by financial institutions. And more particularly, there is a huge spike in the purchase of gilts by Banks around the time when the country was putting itself in more debt by the single, highest amount in living memory. In order to underwrite the Banks’ liabilities and bail-out and stabilise the sector. So, the UK was borrowing money, in the name of ordinary taxpayers, FROM THE BANKS in order to stabilise THE BANKS.

But surely, surely- surely – not the actual banks that we were bailing out…

Lloyds Banking Group’s Report and Accounts for 2010, state that the company has been buying government gilts increasingly, to cover its pension and benefit obligations. Their “Liquidity and Funding Risk” statement from the same year states clearly that “Primary liquidity assets are FSA eligible liquid assets including UK Gilts, US Treasuries, Euro AAA government debt and unencumbered cash balances held at central banks.”

The RBS Report and Accounts for 2010 states that their figures include “an £18.0 billion increase in the gilt liquidity portfolio.” On page 291 of the same document they confirm that this includes UK gilts.

By this point of my research, my hands were shaking with rage. Somebody must be kicking up a huge fuss in the House of Commons over this, I told myself. A search for the word “gilts” through the Hansard’s House of Commons Debates reveals only two mentions. Only one of them is related to the question “to whom to we owe this money?” and that is only on domestic vs foreign ownership.

So, I invite the tax lawyers, the economists, the MPs, the journalists that read this to answer my question; to give me a simple, lucid explanation of why I have this all wrong. I plead with them to reassure me that this is not how it appears; that we do not borrow money from and pay interest to the same people that were the cause of the collapse; that ordinary people like me are not trapped in a perpetual game of Monopoly where someone else always wins the “prize at the beauty contest” and the only card we pick up is a “library fine”; where we never pass “Go”, but always land on “Super-Tax”.

And if they cannot answer my question, then why the hell are they not asking it?

Alex blogs at Sturdyblog, where this post was originally published, and where he is answering any queries on the above post.