Tim Worstall puts us (and the Guardian) out of our confused misery with a simple lesson in Greek debt.

He explains that two factors are in play:

  • How much debt one has
  • When one has to pay it back

Imagine you have a number of credit card debts and loans. Some payments are due now. Some are due far down the road.

You might decide to borrow more money or somehow ‘reschedule’ your looming debts to deal with immediate repayments, hoping that that manoeuvre will buy you time to sort yourself out and afford later debt repayments.

Sounds like a plan. How it works in practice depends on the various interest rates available for your new loans.

Hence Greece’s feverish attempts to stay afloat now as supported by the EU may merely be making things look better in the short term but cause even more misery not too far ahead:

Greece’s problem is that it cannot really issue bonds at anything like an interest rate it wishes to pay. Which means, as This Time is Different shows, that as earlier bond and note issues mature they’re refinancing them with bills (and some notes) and thus reducing the average maturity of the entire debt.

Which means again that in the next few years there will be even more that they’ve got to refinance. Not just the bonds and notes maturing next year and the year after but also all those bills they’ve issued this year as well.

Remember the Horror of Compound Interest – and Compound Stupidity?