Thursday, April 12, 2007

Humber Bridge debt

Professor Rodney Shakespeare writes,

A bridge over the river Humber (in the UK) was required. The materials and expertise were available; the finance was by the UK government which provided interest-bearing loans; and construction was begun in 1972 at an estimated cost of £28,000,000. Because of price inflation, difficult ground conditions, labour relations difficulties and adverse weather, the cost rose to £98,000,000 but, by the time the bridge opened to traffic in 1981, interest charges had taken the cost up to £151,000,000.
At which point an important fact should be noted ─ every year since being opened in 1981 the bridge has made an operating profit i.e., its running costs (basically, repair, maintenance and staff salaries) are exceeded by the fees it receives from travellers crossing the river Humber. Put simply, it’s a money-maker.

With that fact in mind, now consider what happened in the years that followed. In 1982, because of compound interest, the debt was up to £164,000,000. However, by 1992 ─ only ten years later ─ it had shot up to an amazing £439,000,000! Wow!!

Whereon, to stop the huge repayment burden falling on the Humberside residents, the UK government intervened to reduce the rates of interest, write off amounts and give grants of £40m per year so that the debt was effectively pegged for six years. Further ‘re-structuring’ then took place to reduce the debt, i.e., a large proportion of it was cancelled. (Readers are advised not to even think of the horrific level the debt would be at today if the government had not ‘re-structured’ the debt by cancelling a large part of what was due.)

The story of the Humber Bridge then gets egregiously preposterous and completely outrageous. The original money was lent, at interest, by the UK government, which had borrowed the money at interest! Thus, today, the National Debt carries the whole burden (at whatever fantastic level it is now at) and the UK public as a whole (as opposed to the residents of Humberside) will be eternally paying for the never-ending interest on the Humber Bridge!

Please note that, like the Nigerian example, repayments were being made all the time but the figure was up to £439,000,000 by 1992 whereon the government stepped in and, in effect, took the cost of the whole thing away from the residents of Humberside and put it onto the National Debt -- for ever!!! The usually quoted UK Nation Debt figure in the UK is around £8/9 per person per week.

All this information should now put you in a position to understand why Albert Einstein is allegedly quoted as saying that compound interest -- not E = mc2 -- is the greaterst mathematival discovery of all time (or the most powerful force in the unverse).

Whether or not Einstein did say it (or a version) I'm sure that you now get the point about the nature of interest.

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