Tags: South Sea | Britain | debt | bonds

British Taxpayers Paying for Financial Market Bailout Nearly 300 Years Later

By    |   Wednesday, 05 Nov 2014 09:11 AM

Government bailouts are costly and those costs are often passed on to future generations. In Great Britain, taxpayers are still paying for the South Sea Bubble that collapsed in 1720.

Isaac Newton was one of the investors who lost money in the South Sea Bubble, prompting the inventor of physics and calculus to despair, "I can calculate the motion of heavenly bodies, but not the madness of people."

In the early 1700s, Britain's South Sea was the Atlantic Ocean. Investors dreamed of the riches that would be found in the new world and invested in the South Sea Co., which held a monopoly on trade with South America. The stock price of the South Sea Co. went from £128 in January 1720 to £1,000 in August of that year. Within a month after peaking, shares were trading for £150 and many investors were ruined.

Despite the crash, the company continued to exist and eventually the British government refinanced the company, issuing £10 million in perpetual bonds to recapitalize the South Sea Co.

Taxpayers have been paying interest on those bonds since at least 1752. Originally they paid an annual interest rate of 3.5 percent, but the interest rate has been set at 2.5 percent since 1903.

This bailout costs the taxpayers at least £250,000 a year. It is a small amount of money in today's economy, but any amount of debt robs from future generations to pay for mistakes of the past.

Almost 300 years after the South Sea Bubble collapsed, governments continue to treat debts as if they were perpetual. Government bonds are continually refinanced and the total debt obligations of future generations continue to grow.

Since the U.S. also continuously rolls over debt, it is likely U.S. taxpayers will bear the costs associated with the 2008/2009 bailouts in the year 2308 and beyond. If the government continues to recapitalize financial markets after future crashes, the total cost of debt in 300 years is likely to weigh down the prospects of economic growth.

It's not an immediate problem that can be solved today, but debt payments could put an end to the American dream just as they contributed to the end of the British Empire.

© 2017 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
MichaelCarr
Government bailouts are costly and those costs are often passed on to future generations. In Great Britain, taxpayers are still paying for the South Sea Bubble that collapsed in 1720.
South Sea, Britain, debt, bonds
366
2014-11-05
Wednesday, 05 Nov 2014 09:11 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved