That Debt From 1720? Britain’s Payment Is Coming
LONDON — Share prices went through the roof, speculation ran wild and money poured into ill-fated ventures before the boom turned, inevitably and catastrophically, to bust.
After that financial crash in 1720, called the South Sea Bubble, the British government was forced to undertake a bailout that eventually left several million pounds of debt on its books. Almost three centuries later, Britons are still paying interest on a small part of that obligation.
Now, prompted by record low interest rates, the British government is planning to pay off some of the debts it racked up over hundreds of years, dating as far back as the South Sea Bubble.
George Osborne, the chancellor of the Exchequer, said this month that in 2015 Britain would repay part of the country’s debt from World War I, and that he wanted to pay off other bonds for debt incurred in the 18th and 19th centuries.
That includes borrowing that may have been used to compensate slave owners when slavery was abolished, to relieve the famine in 19th-century Ireland and to bail out the infamous South Sea Company, which caused the bubble in 1720. (...)
But the maneuver is also a reminder of how debts incurred by governments are passed down through generations.
In many cases, the underlying debt has already been refinanced, sometimes multiple times, since being incurred. The bonds paying interest on the debt have been bought and sold and passed down through generations, still paying interest indefinitely, until the government decides to pay them off. So old are some of the bonds that closing the books on them may require an act of Parliament in some cases. (...)
Reissuing bonds was a big administrative endeavor in earlier eras. In 1932, the conversion of an earlier war loan to one paying lower interest required so many temporary clerks that 700 lambs were prepared to feed them one evening, according to a history of Britain’s debt by Jeremy Wormell. Now, in the computer age, the task is relatively straightforward, officials say.
Within a total debt of around £1.4 trillion, the historic liability accounts for a small portion — about £2.5 billion, or less than two-tenths of 1 percent of the total outstanding. (...)
The recent eurozone debt crisis is creating a similar legacy in countries that took bailout loans. Ireland is not scheduled to make its final repayment to international creditors until 2042. Greece is scheduled to do the same in 2054.
Britain’s current stock of open-ended historical debts does not include international loans but is made up of a variety of bonds known as gilts, a name that comes from the original British government certificates that had gilded edges.
Of course, much of the original debt has been eroded by inflation. According to research for the British Parliament, prices rose by around 118 times from 1750 to 1998.
