ArmstrongEconomics.com begs to differ. Armstrong says how misunderstood by the public government debt is.
MoneyWeek (7th November 2014), whilst debunking recent UK Government self-righteousness in repaying some World War I bonds, points out that wrapped up in this debt is "the capital stock of the South Sea Company, which had so infamously collapsed in 1720."
The article then goes on to detail just what a bad investment these bonds were:
Not a good investment, then?
No – a terrible one. According to figures calculated for the FT by James Mackintosh, the average rate of price inflation since 1927 has been 4.77% – far in excess of the 4% coupon. In other words, investors who lent Churchill the original £218m in 1927 (when he was Chancellor of the Exchequer) have lost money in real terms – and not just a bit of it. In real terms, HM Treasury sold its Consols (bonds) for £100 each, and is buying them back for (the equivalent of) £1.82 each. To emphasise the apparent boost to today’s taxpayer, the Treasury last week trumpeted its calculation that “the nation has paid £1.26bn in total interest on these bonds since 1927”. In reality, however, the 'nation’ has had by far the better side of the bargain and buy-and-hold investors have seen their capital all but disappear.
Although traders can make money trading bonds in the short term, the buy-and-hold retail investor (what the Americans call "Mom and Pop") is stiffed - and all with the connivance of the investment industry![The italics above are mine.]
Perhaps the government should have been more honest, and instead of issuing war bonds with a promise to pay interest, it should simply have asked for donations. But... when was the last time anyone heard of a government being honest when it comes to cash? Even a Churchillian one?
The dots are all there. You just need to join them up, and the picture will become crystal clear.
