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It's Getting Worse! How The National Debt Works To Make France Go Bust In 10 Years | Anorak

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Yes, It’s Getting Worse! How The National Debt Works To Make France Go Bust In 10 Years

THIS eurozone thing again: yup, it’s just getting worser and worser.

Spain and France faced sharply higher borrowing costs on Thursday, struggling with bond auctions that highlighted the threat of larger euro zone economies succumbing to the debt crisis that began in Greece and is now threatening Italy.

What you need to remember about all of this: when we say “higher borrowing costs” here we don’t mean that the country has to cough up more on all its debt…….ah, no, let’s start more simply.

When a government wants to spend more (read, give more goodies to people so they’ll get elected) money than it collects in taxes it issues a bond. This is an IOU saying that we’ll pay you back in 1 month, 10 years, 30 years, promise, and in the meantime we’ll give you some interest. That interest rate they have to pay to convince people to lend them the money is the borrowing cost or the yield.

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Posted: 17th, November 2011 | In: Money | Comment