Most people believe the national debt is a danger to our economy. In this video, I explain why that story is wrong. National debt isn't a burden; it is our money supply. Every pound, dollar, euro or yen in circulation exists because governments run deficits that create the currency we all use.
So if every country is in debt, who owns it? The answer is revealing. More than 80% of global government debt is privately owned — and largely by pension funds, life assurance companies and, ultimately, the world's wealthiest households. The 1% benefit enormously from the interest payments we all fund.
I also explore what we can do about this: lower interest rates, tax unearned income fairly and bring more of the money supply under democratic control.
If you want to understand how our economy really works — and why politicians keep getting this wrong — this video is for you.
This is the audio version:
This is the transcript:
If all the world's countries are in debt, and that's pretty much true, then who do they owe the money to?
That's a question that I heard asked recently on the radio, and the commentators on the programme in question did not know the answer. So let me explain.
There is roughly $100 trillion of national debt in the world at present. Now I say roughly because this figure is changing all the time, and the data is a little out of date. So take every number that I give in this video with a pinch of salt, because most will be 2023 or 2024 data, and, of course, we're now in 2025.
But, give or take, the USA is the world's biggest debtor by a long way. It had total debt in 2023 of $32.9 trillion, but which we now know is heading for something like $36 trillion. So roughly one-third of all the national debt in the world is owed by the USA.
I've made other videos on this subject, pointing out that actually the world can't survive without the USA owing that debt because the money in question is the dollar, of course, and that is the world's reserve currency. And so is that debt really debt? It's a good question, but it still leaves well over $60 trillion of other debt in the world.
China is the next biggest debtor. It owes over $15 trillion.
Japan owes around $11 trillion.
In comparison, the UK comes in a very low fourth, at only a bit over $3 trillion, roughly the same as France, a bit ahead of Italy, somewhat above India, above Germany, and then Canada and Brazil and those countries between them make up the top 10 at present.
There are, however, a vast number of other countries with debt. In fact, almost every country in the world, except its ten or so failed states, have got data that show that they are in debt.
Being in debt is something that countries do as a matter of course, which is quite interesting in its own right, because why then do we obsess about the fact that national debt is such a bad thing when every country is in debt? Well, of course, the answer is very simple and it's very straightforward. The national debt of a country represents the currency that it has effectively put into circulation in its jurisdiction, in its own domain, in its own legal tender, in a way that is essential if its local economy is to work, and, therefore, national debt is nothing more than the world money supply.
But who owns this supposed debt? That's the question that was asked, and that's the question that needs answering.
So I've had a look at this, and I'm quite surprised to find the answers.
First of all, I expected a very high part of that national debt to be owned by other countries.
So for example, in the case of the USA, I expected to find that a significant proportion of the total value of US national debt would be owned by the central banks of other countries. But in fact, only one eighth of the national debt, a bit over $4 trillion in the case of the USA, is actually owned by foreign governments, it would seem. The rest is in private circulation.
In the case of the UK, the figure in question appears to be one sixth of our total national debt is owned by foreign governments.
In the case of France, it's a bit higher than that. The situation is confused there by the existence of the European Central Bank, but the figure might be creeping a bit above 20%, and that also appears to be the case in Germany.
In Japan, one of the biggest debtor nations in the world, there is almost no overseas ownership of the debt because whilst its debt is massive in proportion to the country's gross domestic product at well over 200%, which puts it completely out of proportion with any other developed economy, almost all of it is domestically owned, either by the Japanese national government itself or by private individuals.
The point is very simple though, and it is quite straightforward. There is a massive amount of debt, which is in private ownership. Give or take, more than 80% of the world's debt is likely to be owned privately. And if that's the case, who are these private owners?
Well, you might be one of them.
I probably am as well.
And the reason why is you probably have a pension arrangement of some sort, as do I.
And pension funds are major holders of national debt. In the UK, a bit under 30% of all the UK's national debt is owned by pension companies and life assurance companies. They need it to fund their operations, because the UK government is the only person in the UK who is guaranteed to never go bust and who will always pay their debts in the pounds that the government alone can create. And therefore, pension companies, which make very long-term promises to people like me, who might live a long time on the pension that they've earned, need that assurance to guarantee that they can fulfil the promise that they've made.
And this is true right around the world. In the USA, vast quantities of the US national debt are owned by pension funds, and that's true in Europe as well.
So the point is that this money, this national debt, about which the world obsesses as if it's a great burden, is in fact the bedrock of the private sector finance industry.
You would never imagine this from what is said, but there's something even more important than that, because if it is the bedrock of the private sector finance industry, then it's also the foundation of the private wealth which that industry manages. And the vast majority of the private wealth that is managed by the private sector finance industry is owned by a few per cent of the world's population.
We know that the ownership of wealth around the world as a whole is massively skewed. If there are 8 billion people in the world, maybe 80 million of them might own a significant proportion of the wealth. In other words, there are 1% of the world's population with ownership of most of the world's assets. And if that's true, and if they own these funds through their pension funds and other such arrangements, then the interest paid on this national debt, which might amount to something like 3.2 trillion dollars a year, might equate to something like $40,000 per head for the top 1% of wealth earners around the world.
Now think about that. $40,000 a year in interest is being paid to 80 million people, but the other 99% between them, have an average income of only $13,500 a year.
So the wealthiest are earning potentially three times more per annum in interest than the rest of the world is earning as a result of their labour.
Now, these figures are simplistic. They are extrapolated, and they're bound to be wrong to some degree. I make that very clear. I am working on the basis of simplified assumptions, but I'm doing so to make clear just how great the bias in this system is towards those with wealth.
It may be that the world's wealthy claim government is spending recklessly in piling up debt, which is going to be a burden on future generations and all the other nonsense that you hear right-wing politicians talk. But the truth is, when the government creates debt, somebody has to own it, and the only people who can own it are the wealthy.
And they get wealthier as a result of that debt being produced. Because, effectively, every time interest is paid on the national debt, their wealth goes up. They tend not to spend it. They, therefore, can pay for more government debt issues. And as a consequence, the ownership of wealth becomes ever more concentrated, and we get a more divided world.
What can we do about this? Well, I suggest there are a number of things we can do.
First of all, there needs to be a concerted effort, the world over, to reduce the interest rate on national debt. It is too high.
Secondly, around the world, we need concerted efforts to make sure that unearned income, which is, of course, what interest is, is taxed more fairly. At present, it tends to be taxed less than earnings from workers, and that is absurd. It should be taxed more, because quite clearly, it's unfair to tax unearned income at a lower rate than earned income.
And thirdly, around the world, we need more progressive tax systems. Why? Because we need to recover more of this money from the wealthy to make sure that governments are not burdened by this cost to the point where they cannot provide the services that people in their countries need. That's a simple, straightforward fact.
But the ownership of this wealth also needs to be democratised, so we need to look at how we might bring it back under public control.
Japan has done this. It is possible. To some extent, this happened during Covid and during the crises after the 2008 financial crash.
Why did that happen then? Because of quantitative easing. And now the UK, in particular, is trying to reverse that through quantitative tightening. The public ownership of this debt, which has provided benefit to Japan, and does, I think, provide benefit in the UK, is being unwound.
We need to bring debt under control.
We need to bring the money supply under control.
We need to bring the benefit of the government being able to create money into the public domain and not into the private domain, which is where it is now.
So that question, who owns the debt? is very simply answered. The world's wealthy people own it, and they win hands down by doing so.
If only we understood that, if only the radio commentators that I heard had understood why it is possible for all the world's countries to be in debt simultaneously, and yet have somebody to own that debt, who are the world's wealthy, then they too would've reached the conclusion that something needs to be done about this.
Now, you know. Now you know what is required.
Go and talk about it.
Go and tell the world that the national debt is not a problem because it is our money supply, but the ownership of our national debt and the fact that the income from it is undertaxed is a problem, and that's what we have to address.
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This is something even Yannis Varoufakis is asking – again, it needs talking about and understanding the alternatives that are available and to end this emotional blackmail.
The thing is, if the state was not in any ‘debt’, there would be hardly any money anywhere. And then, once that money is released, they get slagged off for creating it, whilst others hoard it and keep it to themselves for their little fascist projects here and there.
No reason I suppose why there could be different issues of Government Stock for ‘private purchase by 90% of the population’ ‘Pension Funds’ etc to reduce the wealth transfer effects
Or of course various financial products sold or provided directly by The Government eg Pensions, National Insurance etc
What I find so deeply ironic about the national debt held by UK institutions and individuals is that it has been bought with money which the government issued in the first place. So it’s paying interest (more govt issuance) and ‘growing’ individuals’ wealth, then wringing its hands over it.
Correct
Thanks Richard. This video merits constant repetition. However, I do wonder whether one of the reasons that politicians love talking about the national debt (or maxing out its credit cards or spending beyond our means) is that it provides them with cover for their own ideological choices. Also, the term “national debt” (or even “deficit” as your glossary prefers) is itself misleading. Is not the reality that the so-called “national debt” (issued currency) effectively the oil that greases the wheels of the economy. If you don’t put in, and periodically top up, the oil in an engine it seizes up. Is that not what is happening today – “austerity” is the effective draining of the oil from the engine of the economy without replacing it with fresh oil?
Hope you are soon fully recovered.
Have a restful weekend.
Thanks
Not better, yet.
But better than I was.
Very interesting and correct, the puzzling thing for me, is why these very wealthy right wingers argue to reduce the debt? Is it to increase the value of the debt they hold? I’m not sure
They don’t know.
Enjoyed your video on Government Debt. Useful to rewatch because both ideas & terms become more familiar. But that promotes a thirst for more detail…
I would love you to make another video on the same subject but dig a bit deeper. I really want to be able to refute explanations like the BBC’s (https://www.bbc.co.uk/news/articles/ce85rl65j48o) which seem to be still based on the economics of the 1700s where, presumably, carts of actual gold were trundled to the newly created Bank of England in exchange for hefty interest payments.
Fast forward to now and I’m keen to know why, if gilts are a savings facility, governments pay interest on them at all. I notice in your video you suggest interest payments on bonds should be reduced, not eliminated. But if the money deposited with the government is not *used* then, surely, it’s not a loan, it’s a bailment — like my furniture locked up in the local storage facility — which offers no interest but, understandably, expects payment for the security offered.
Also, having replaced the term ‘government debt’ with, say, ‘money supply’, do you think there is merit in using the new term throughout your video? I find misleading terminology impedes my understanding. Probably why courts insist on ‘the accused’ rather than ‘the murderer’ 😉
Hope the cold/flu gets better soon.
Thanks for this comment.
The BBC article you cite is a good example of the problem. Much contemporary commentary still relies on metaphors inherited from the late seventeenth and eighteenth centuries, when money was imagined as scarce, metallic and physically transferred to the Bank of England in return for interest-bearing debt. The carts of gold may have disappeared, but the conceptual framework remains. That framework is no longer fit for purpose. The gold standard has long gone. Apparently yhe memory has not.
On gilts, your instinct is correct. In a modern monetary system, gilts function primarily as a state-backed savings facility. A currency-issuing government does not need the money placed in gilts in order to spend. Government spending creates money; gilts provide a safe place for that money to be held afterwards. Describing this as “borrowing” already misrepresents what is happening.
Why, then, does the government pay interest? Not because it must, but because it chooses to. Interest on gilts serves three functions. It provides a risk-free asset for pension funds and insurers whose business models depend on predictable returns. It assists the Bank of England in managing interest rates across the wider financial system. And it has distributional consequences: interest payments are a policy-driven income transfer.
That is why I argue for reducing interest rather than abolishing it outright. Zero real interest would be a coherent policy, but it would require a significant restructuring of financial institutions that currently rely on gilts. The critical point is that interest is not an obligation arising from a loan; it is a design feature of the monetary system.
Your bailment analogy is a useful one. In practical terms, gilts resemble custody far more than lending. The money is not “used up” by the state in the way a household uses a loan. Interest is paid because we have chosen to organise finance that way, not because economic necessity demands it.
On language, I agree that “government debt” is a misleading term. It imports ideas of burden and repayment that do not apply. In teaching and writing I often prefer “the stock of government-issued money” or “state savings”. In videos, I still use orthodox terms initially so viewers can recognise the argument being dismantled. But the underlying objective is exactly the same: to replace misleading language with clearer thinking.
Let me think about a video.
Hello, I am puzzled by parts of your article. In one sentence you state that the national debt is nothing more than the global money supply. How so? The former is the amount borrowed by a government to fund eg welfare spending and investment in hospitals. The latter is inter alia the loans made by banks for house mortgages or wind turbines. The former is about $100 trillion, the latter is about $140 trillion globally. If the national debt rises, the money supply can decline (or at least grow at a much slower rate) – that often happens in a recession. Secondly, if the interest rate is lowered on the national debt how will pension funds be able to pay out the pensions which the schemes are generally legally required to meet? Finally, are you suggesting that the government nationalise the banking system, or what means are required for the state to control the money supply as opposed to the interest rate which the Bank of England does. Isn’t that a return to the Thatcher government money supply rules? Many thanks for your thoughts.
Let me take your points in turn, because they rest on understandable but important category errors.
First, when I say that national debt is part of the global money supply, I am not claiming the two are identical or that they move one-for-one. Rather, government debt is a component of the broad money system because gilts and central-bank reserves are financial assets held by the private sector and are counted within global liquidity.
Bank lending also creates money, as you note, but that does not negate the point. The key issue is that government “debt” is not a drain on money: it is one of the safest forms in which money exists, and only because the money has previously been spent into existence by the government, which fact is the basis for my suggestion. That is why this supply expands when governments run deficits and contracts when surpluses are imposed, even if other parts of the money supply move differently during a recession.
Second, on pensions, this is often misunderstood. Pension schemes do not require high interest rates; they require predictable, secure income streams. Paying unnecessarily high interest on government liabilities is a transfer to wealth holders, not an economic necessity. If interest rates are lower, pension obligations can be met through a combination of longer-dated assets, different indexation choices, and changes to scheme design. The idea that pensions collapse without high gilt yields is a product of how the system has been engineered, not a law of nature.
Third, I am not proposing the nationalisation of the whole banking system, although there are real merits to havign a state bank. Nor am I suggesting a return to Thatcher-era money supply targets. Commercial banks already create most money, and that will remain the case. What I am arguing for is democratic control over the terms on which public money is issued and rewarded. That means deciding interest rates on state liabilities as a policy choice, regulating bank credit creation more effectively, and aligning monetary and fiscal policy. That is not monetarism revived; it is recognising how the system actually works and governing it accordingly.
Richard, may I take your three replies one by one. I find problems with them all but I am sure you will help me understand.
1. I am confused by your first point. In your reply to me you stated: ‘First, when I say that national debt is part of the global money supply, I am not claiming the two are identical or that they move one-for-one’. However, in your initial article you did indeed say: ‘The national debt of a country represents the currency that it has effectively put into circulation in its jurisdiction, in its own domain, in its own legal tender, in a way that is essential if its local economy is to work, and, therefore, national debt is nothing more than the world money supply’. Your two sentences (or thoughts) do not match. If you include the words ‘a small part of the world money supply’ in that longer sentence then of course it all makes sense.
2. On pensions I was not saying that pension schemes rely on high interest rates but instead how would such schemes cope if the entire bond yield structure was reduced as I think your proposals imply. If I read the following sentence sentence correctly, I think you implicitly accept therefore that future payouts to pensioners would have to be cut “If interest rates are lower, pension obligations can be met through a combination of longer-dated assets, different indexation choices, and changes to scheme design”.
3. A bond investor would argue that yields in modern economies are well anchored by the growth and inflation environment which they seen in the world around them. 3.2% yields for European 10 year bonds matches EU economic growth of about 1.2% a year and the ECB’s target of 2% inflation. Do you disagree with current bond pricing?
5. Lastly and most importantly, thank you for reassuring me that you do not advocate money supply control as in the 1980s. The key words in your reply are ‘deciding interest rates on state liabilities as a policy choice’. In essence, are you arguing then for government control over the entire gilt yield curve, either through capital controls (eg China) and/or yield curve control (eg Japan)? Thank you
Let me respond to your points in turn, because each raises a distinct issue.
1. You are right to some degree to call out the wording. My intent was not to claim identity between national debt and the entire world money supply. The precise claim is that government debt constitutes that part of the money supply created by the state rather than by banks. Bank lending creates additional money, albeit under government granted license, which is why the totals differ. I accept that the sentence you quote would have been clearer had it explicitly said “a component of” rather than appearing to imply equivalence. The conceptual point remains though: government debt is money in circulation, not a burden draining it.
2. On pensions, no, I am not implying that pensioners’ payouts must be cut. What must change is the financial engineering of pension schemes. Defined benefit promises are real social commitments, but how they are funded is a design choice. If gilt yields are lower, schemes adjust duration, contribution rates, state backing, or indexation rules. The problem lies in pretending that high interest rates are required to make pensions viable, when in reality they are a transfer from the state to asset holders. The problem is much more fundamental in any case. Please see my work on the fundamental pension contract. Google it.
3. I do not dispute that investors narrate yields in terms of growth and inflation. What I dispute is causality. Bond yields track policy expectations set by central banks, not some independent market wisdom. When central banks choose to enforce rate paths, markets follow. QE demonstrated that decisively.
4. (Or 5, as you had it). On your final point: yes, the logical conclusion is that the state should exert control over the gilt yield curve. That does not require 1980s-style monetarism. It can be done through yield curve control, coordinated Treasury–central bank action, and regulation of capital flows if necessary. Japan is the clearest modern example. This is about democratic control of public money, not crude money supply targeting.
Richard, I for one would appreciate understanding this better. In a recent Guardian article by Aditya Chackrabortty I picked up that the bond market dictates the interest rates. ChatGPT seems to confirm this, stating that whilst the BOE can influence through policy decisions, the market dictates by what it will pay at auction for bonds. This makes it seem that the government is at the mercy of the markets, however I know you have disputed this many times. It’s been revelatory for me to understand how money actually works and I would like to further this by better understanding how the government could and should call the shots re gilts. Thanks.
This is a very common source of confusion, and it arises because two different things are being conflated.
Bond auctions do reveal a price, but that does not mean markets dictate interest rates in any meaningful sense. They bid within a framework set by the state. The government decides whether to issue gilts at all, what maturities to issue, and in what quantity. The Bank of England sets the policy interest rate, provides liquidity to the banking system, and acts as buyer of last resort in the gilt market. Those choices dominate outcomes.
Markets cannot force a currency-issuing government to pay an interest rate it does not choose to tolerate. If the Bank of England commits to maintaining a given yield – explicitly or implicitly – it can always do so by purchasing gilts in whatever quantity is required. This is not hypothetical; it is exactly what quantitative easing demonstrated.
The idea that “the bond market dictates rates” is therefore backwards. Markets react to policy signals. When interest rates rise sharply, it is because the central bank has chosen to raise them or has chosen not to stabilise the gilt market.
So the government is not at the mercy of the markets. What constrains it is political choice and institutional design, not financial necessity. Understanding that distinction is crucial, because it reveals that high interest costs are a policy decision, not an unavoidable fact of life.
Another thought-provoking article, thanks.
You have said before that, in the UK at least and no doubt in other countries, debt is issued to be broadly equal to the shortfall between spending and tax, but that it need not be (because, e.g. the UK just runs up an “overdraft” with the BoE). Will that be true of most / virtually all of the c.£100tn of debt issued?
(Just trying to get my head round the distinction between the “overdraft” facility and the national “debt” … say the government spends 500 and then taxes 300. Private money is therefore 200. Issuing gilts for 200 is basically then just saying the private sector exchanges 200 of cash for 200 of gilts (which represents an income stream + redemption payment, while the payment of 200 represents money getting cancelled effectively).)
There is also a sizeable proportion of gilts owned by the BoE and therefore the UK government. How much might that be replicated anywhere else in the world?
That may not be true in all cases: some will be foreign curtemncy borrowing, and then the relationship is more tenuous.
Re bond holdings by states: broadly speaking that is in tjhe 20%.
I’m also trying to get my head around the difference between ‘government debt’ and ‘national debt’. The latter term is what the press and politicians use to frighten us, as if it’s all owed to foreigners, whereas from what you say that is true of only about 20% of it. What’s more that is surely GROSS national debt as we own some of other countries’ debts, so maybe we should refer to NET national debt which would be a lower percentage.
So wouldn’t it be best to avoid it altogether and always refer to ‘government debt’ (albeit mentioning if necessary that barely a fifth of the creditors are based in other countries)?
In UK usage, “government debt” and “national debt” usually refer to the same thing: the outstanding stock of gilts and related so-called liabilities issued by the UK government. “National debt” is the more emotive phrase, and it is routinely used to imply a burden on “the nation”, often with the suggestion that it is largely owed to foreigners. That implication is deliberately misleading.
Only around a fifth (the figure, inevitably fluctuates) of UK government debt is held overseas. The majority is owned domestically – by pension funds, insurance companies, banks, the Bank of England and households, although the latter is often indirectly. In other words, most of what is called the “national debt” is money the UK owes to itself.
You are also right that the headline figure is a gross measure. The UK, like other countries, owns financial assets abroad, so a net position would be lower. That fact is almost never mentioned in political debate, because it undermines the scare story.
For those reasons, I agree that “national debt” is best avoided. “Government debt” is more accurate and less loaded, provided it is explained properly – including who holds it and what it actually represents. Language matters here, because the wrong term smuggles in the wrong conclusions before the argument has even begun.
I’ve just watched a number of interviews with Zak Polanski on economic matters and what a breath of fresh air he is. He doesn’t claim to have all the answers, however he appears to have a much stronger grip of how Government spending and debt works, he mentioned the differing multiplier effects on spending in the NHS and the military for instance and that some of the interest payments on gilts are paid back to the Bank of England. He referenced you at one time when asked on ‘The Rest is Politics’ who his economic mentors are (interestingly they tried to rubbish a couple of the people he mentioned, including Gary Stephenson, though not you) . This got me thinking that, rather than trying to get together with GS, Zac, who is a politician operating within the Westminster machine, might be a more effective partner to help get your message across?
Have you seen my podcast with him, on his YouTube channel?
No I haven’t, I’ll have a look thanks.
Watched it, brilliant, it needs to be slowed down to 3/4 speed though, there’s so much covered in the time. I look forward to watching episode 2.
Thanks
Just slightly off-topic:
Have you seen that James Meadway is to set up a think-tank called Verdant to – yes, advise the Green Party on “progressive economic policies”?
Who is funding it?
And will its staff include jobs for the boys (Simon Wren Lewis and Jonathan Portes)?
I hadn’t
Quite worrying
This is covered here:
https://www.bloomberg.com/news/articles/2025-12-12/uk-greens-try-to-get-serious-on-economy-as-party-climbs-uk-polls
The aim is to help the Green Party recognise that the UK is dependent on the bond markets, come up with new fiscal rules, and ensure that their policies are approved by the bond markets.
It looks like there is an MMT vs anti-MMT disagreement at the top of the Greens. I have been pleased hear from Polanski a lot that to me sounds like MMT, but Meadway believes what Polanski has been saying is not MMT but rather just Keynesianism.
Meadway is a carpet pet bagging Marxist on his third party in a decade, with a visceral hatred of MMT and so economic truth.
I am deeply disappointed to see Caroline Lucas join this.
I am not a Green. I won’t be in any party. But if they go down this route the electorate will, I can guarantee you, reject them resoundingly, and rightly so. Meadway wrote the ‘maxed out credit card’ crap for John McDonnell. At heart, he is just another one who cannot get over the Paul Samuelson / neoliberal framing of what he thinks is Keynesianism at the end of the day. He failed Corbyn. He will always fail.
On the subject of future videos – or should I say podcasts – one I would like to see is a discussion between you and Christine Desan, who, as I understand it, has come up with a concept of money that essentially matches MMT, but from a legal/historic perspective, rather than an economic/accounting one, in which you can compare approaches, and where, and to what extent, you agree (or don’t) regarding the monetary system.
Noted
I agree with what you say. After much thought and studying what you and others have written. I see the so called National Debt as actually the National Savings. That said It has raised a question in my mind that I am finding difficult to resolve. Perhaps you can help me out.
Government does not need to issue bonds – they are a safe savings asset that they offer. They could just run an overdraft at the BoE and I understand that they used to do that – an overdraft on the Ways and Means account. If they did that though, wouldn’t it add fuel to the argument that it is actually a “debt” and go some way to “justifying” the argument for the household analogy of blowing the overdraft/maxing out the credit card?
That’s were I get a bit confused.
You have identified a real tension, but it is a political one, not an economic one.
It is correct that the state does not need to issue bonds. Government spending can be, and historically has been, settled through an overdraft at the Bank of England via the Ways and Means account. Bonds exist to provide a safe savings asset and to help manage interest rates, not to fund spending.
An overdraft does not make the household analogy any more valid. It only appears to do so because people import private-sector meanings into public-sector accounting. A household overdraft is constrained because the household cannot create the money needed to settle it. The state can. The two are not comparable.
The problem is rhetorical, not operational. Any balance shown as “negative” will be described as debt by those determined to push that narrative, whether it arises from bonds or an overdraft. Bonds were in fact introduced partly to make government finance look more like private borrowing, not because it was necessary.
Calling the stock of government liabilities “national savings” is far closer to the truth. Whether those savings are held as gilts or as central-bank reserves makes no difference to the state’s capacity to spend. The constraint is inflation, not solvency.
So your confusion arises because you are treating the presentation as if it changed the reality. It does not. The danger lies in bad metaphors, not in the accounting mechanism used to record public money.
Richard, thanks for accepting that the original debt/money supply argument was imprecise. But you say ‘The conceptual point remains: government debt is money in circulation, not a burden draining it’. Putting aside TBills, a long dated bond cannot be money in circulation. Not many investors wish to purchase such an asset, and the price is volatile unless held to maturity. The price of the Austria 100 year bond halved since 2020. Is such a bond ’money in circulation in the Austrian economy’?
Turning to a fundamental pension contract, I acknowledge that in exchange for favourable tax treatment then pension schemes could be required to invest in UK assets. The risk is politicians prefer UK gilts / deficit funding rather than infrastructure/affordable housing/transport etc.
Two queries though. Aren’t you assuming a DB scheme operates in a closed economy? A pension plan investing in global assets uses the productive growth/profitability of young generations/businesses in emerging markets to fund the incomes of UK pensioners. Inter-generational transfers can cross borders.
The next sentence must be hyperbole: ‘What private pensions do is put money into speculative assets. Things like stocks and shares, like speculative buildings. And those buildings (I assume you mean shares too) are bought so they can be sold at a profit’! Yes there is some speculation in any stock market (AI bubble today?). However, many pension scheme trustees look to invest in quality companies giving a solid dividend over decades. Please look at the BP DB pension fund statement of responsible investment policy. Is that investing in speculative assets?
Next quote ‘Bond yields track policy expectations set by central banks, not some independent market wisdom’. But what happens when central banks lose control of inflation and inflation expectations, a regular occurrence? They lose control of the yield curve. Would you agree ‘Bond prices track investor expectations of how successful central banks will be in keeping inflation at target over a bond’s lifespan’.
Lastly, you see capital controls, QE and YCC as the way forward. Do central banks have any role as independent policy making institutions or should politicians control ‘base rates’? How would you offset QE’s considerable adverse risks (inflation/house prices/income inequality)? Where is the LSE blog wrong – how-quantitative-easing-went-from-temporary-crisis-response-to-permanent-policy-change. Is the CEPR wrong ‘quantitative-easing-generates-more-inflation-conventional-monetary-policy’. Or Prof Onaran (committees.parliament.uk/writtenevidence/23107/html/)
I look forward to your reply.
Thanks, but I think you are missing a great deal of the point inthis debate, focussing on the minutiae and not the big issues. It is a common mistake.
1) “A long bond can’t be money in circulation”
A 100-year bond is not “money” in the sense of a medium of exchange. It is, however, part of the monetary system as a state-issued, sterling/euro-denominated savings asset (a form in which private wealth is held). Its market price can be volatile – Austria’s century bonds are a good example of duration risk. 
So the clearer formulation is: government liabilities (cash, reserves, bills and bonds) are a major component of private sector financial wealth. They are not a “burden” in the way the household analogy implies.
2) Pensions and “speculation”
You are also right that pensions are not necessarily casino finance. Many trustees buy for long-term dividends. But equities are still priced on expectations and can become speculative in aggregate even when individual intent is prudent. The key macro point is that secondary-market trading mostly reallocates claims; it does not, by itself, build houses or railways.
Cross-border investing also happens, of course. But that is an argument about how we choose to fund retirement, not a reason to pay excessive interest on UK state liabilities.
3) Do markets anchor yields to growth + inflation?
Investors tell that story. But yields largely embed expectations of central bank reaction to inflation. When inflation credibility is damaged, the remedy is political–institutional (policy choices), not “bond vigilantes” discovering a natural rate.
4) Capital controls, QE, YCC, and independence
Yes: yield-curve control is one route to “the state calls the shots”. Japan shows it is operationally possible. The real debate is governance: what mandate, what distributional safeguards, and what complementary tools (tax, regulation, credit guidance) are used.
And I agree QE has had adverse side-effects via asset prices and inequality. That is widely argued, including by LSE authors, and it also shows up in UK fiscal accounting once rates rose. But that is an argument for changing how monetary policy is implemented (and who benefits), not for pretending the state is powerless.
Dear Richard, thanks for your further explanation. I make no apology for examining the minutiae of your statements – details really matter when you are making significant, some would say grandiose, claims such as ‘there needs to be a concerted effort, the world over, to reduce the interest rate on national debt’! Countries could not agree on COP30 and you are calling for ‘a concerted effort’? By asking such questions I learned much about your understanding of modern economics, national accounting & international finance, and why your definitions of key concepts are so fluid; eg in your latest reply you talked about ‘bond vigilantes discovering a natural rate’, when the classic description of the natural rate of interest is ‘the theoretical interest rate that supports the economy at full employment and stable inflation, serving as a benchmark for monetary policy’. Very clearly that is a statement focused on short or base rates, not long dated gilt yields! However, no need to dive down that rabbit hole. Back to the big picture. Actually there is much I agree with in your analysis, such as the need to equate taxes on income and capital to reduce inequality. I sympathise with your worries about the household analogy towards public sector debt. It is understandable why politicians have long used that simple explanation in discussions with the public. Of course it is not the approach used by professionals at eg HMT, the BoE FSR, IMF or the wider economics community. Now that I have a better understanding of the big picture ideas you are putting forward, I have to disagree with your fundamental argument that the solution is politicians should control base rates, and the yield curve through YCC/QE, and introduce capital controls to prevent capital flight – if only because of the inevitable disruption if certain politicians of the right or left had that degree of power! While it is true that public debt serves as a safe asset within the financial system, I think you are incorrect in implying that debt levels and debt servicing are largely benign regardless of size or structure. Debt sustainability should depend on interest vs growth differentials, fiscal credibility, and taxation capacity. MMT type techniques would be a serious risk to the financial stability, retirement security, and risk management of millions of ordinary workers. No need to reply. Thank you once again.
I think we are agreeing to disagree, because we do.
That’s ok.