By VennerRoad, 30th Oct 2014
The Wonga Logo
Early this month, it was announced that the payday loan company Wonga was to write-off £220 million of debts from 330,000 customers under pressure from the legal authorities, in particular the FCA. This sounds like a staggering amount of money for any company to lose, but the bulk of it was not lost at all.
In an interview with the BBC, former Wonga customer Elliott Gomme said he took out a loan of £120 which with late or missed payments increased to £800. Clearly the most money the company will have lost on this transaction is £120; it is not clear how much Mr Gomme repaid, but it will surprise no one who is au fait with these companies if he had already repaid the entire loan in full and then some. The compound interest on this loan is regarded in economic circles as the cost of his borrowing the money. The theory is that money today will buy more than money tomorrow – a claim that is not true where technology is concerned. There is also the little matter of the money this money could be earning if it were put to work elsewhere.
This argument is superficially convincing, but does not hold water.
Which brings us to government debt. Like Wonga debts, much government debt is conjured up out of thin air, yet it has to be “repaid” with interest. Or does it? At times, governments have simply told the banks to take a hike.
For example, after the devastating 2010 Haitian earthquake, the G7 group of nations wrote off most of the debt the island owed, namely our rulers told the banks there would be no “repayment” and the banks did as they were told. Did the sky fall? This begs the question, what would happen if the British Government and indeed all other governments were to simply tell the banks they were no longer prepared to service their national debts?
Way back in the 1940s, the Duke of Bedford came up with a proposal to do this; he spelled it out in a publication called The Absurdity Of The National Debt. This proposal is as valid today as it was then; the only thing still missing is the will to implement it.
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