Quote from: Vandroiy on January 29, 2012, 06:03:31 PM

Quote from: johnyj on January 18, 2012, 10:22:15 AM

If you get 5% return by refinance someone's debt, it is better than sitting there and collect 0 interest

In reality, governments can never write the debt off, they just refinance, and this refinance could go as long as several centuries... Have you heard the FED reinvesting short term loan income and principals into long term loans? For those who can borrow without debt limit, the only cost is interest, and that interest could be 0 (Germany bonds already reached negative interest)

Digging this up because nobody else answered. Again, I don't think the problems I named were addressed.

Someone has paid that money, and it entered the system afterward. These people will make losses if the debt vanishes, and therefore massively raise interest rates. If this is paid with new money, the funds that were initially distributed cause inflation, as they are left on the market as extra money after the whole operation.

Can you draw a graph of how the money flow, including the initial lending, is supposed to look like? I claim this is not possible, or will show that the position at the end includes an unsolved problem.

People are going to make losses anyway. The whole reason for buying government bonds is that you have absolutely nowhere else to invest your money. So you buy UK debt at a loss of 2% of your capital per year...thats preferable to losing more than 2% per year on the stock exchanges.

One particular group will take extraordinary losses. Hedge funds that have bought heavily into Greek bonds at over 7% on the assumption that the Greeks would never be allowed to walk away from the bonds. Now the Greeks are walking away from 70% of the face value and the hedge funds will take a loss. Does anyone really care?