Borrowing money


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The story as I remember it goes like this. Sometime in the early 1920s Britain and France asked for relief from some of their war debt to the USA. An American senator, speaking, I like to think, in the accent of Humphrey Bogart or John Wayne, said “they hired the money, didn’t they?” Quite so; end of story.

Well, successive Greek governments over many years have hired an awful lot of money, and, if the latest bail-out deal is approved and goes through, are about to hire a lot more. Not surprisingly, the lenders want some assurance that this time the Greek government is serious about cutting public spending and raising public revenue.

When a Government spends more than it collects in taxes, it has a choice. It can practise austerity or go for growth. Some of those who now criticise the insistence of the EU – or rather the eurozone states – that Greece must endure another round of austerity if it is to receive yet another bail-out loan, are among those who approve of George Osborne’s austerity policies here. Among those indeed are some who insist that in order to cut the deficit and prevent the national debt from continuing to rise.

Be that as it may, the truth is that the creditor almost always has an advantage over the debtor, especially when the debtor is asking for new loans to keep afloat. When the Labour government had to turn for support from the IMF in 1976, the Chancellor of the Exchequer, Denis Healey, was obliged to make deep cuts in public spending. Going for growth in the hope that a booming economy may make it easier to cut the Government’s deficit may make sense, but this is not how the creditor sees it.

Sadly, it’s reasonable for Greece’s creditors to suspect that the Greek Government will promise anything to get the loan it urgently needs – and then forget its promises unless they can in some way be made binding.

Interesting facts

  • As money became a commodity, the money market is nowadays a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Trading in the money markets is done over the counter, is wholesale. Various instruments like Treasury bills, commercial paper...


Additional information


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Popular Q&A

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What is the value of borrowing money?

There is no value of borrowing money. After all, you have to pay it back and often twice or 3 times as much as you originally borowed, but people do this because they want to buy (f.e a car) fast, and they can not wait to get their money by working.
^_^