National Debt

A different question...

To develop a nation in terms of infrastructure and income via trade, you need...well...money. Some nations, such as England and France, tend to be wealthy naturally (under normal circumstances, exceptions being I suspect both in G7 where they are war devastated) and can afford to invest fairly easily but for majority of nations I suspect this isn't the case.

Now such nations can raise income by hiring out recruits, selling commissions, etc but these generate relatively small amounts and the cost of developments such as canals is comparatively high. For poorer nations, like Scotland, even building a single level of roads can be 20% of annual income and a level of canals can be twice (or more) of total national income. For such nations either the options are to use what 'spare' income you have to invest in trade and other developments (and maybe raise taxes) and hope in a few years that generates enough additional income to allow you to undertake such improvements; or you get a loan from a bank somewhere. If you want to do things quickly, the loan is the 'best' option.

Of course, if you are borrowing enough to build canals, you're going to be borrowing more than your income and you might need to borrow extra to cover loan repayments, for a couple of years at least, until things like a level of canals is complete and (hopefully) your income has increased enough to meet the interest (and enough spare to develop your nation). However, the amount of interest can easily be excessive-using an example from one game I am in, interest was working out at nearly 20% of national income (at least before any benefits from developments kick in)

Ok, I am sure everyone knows this but thought it best to spell it out so it was clear where I was coming from. Is this the best solution? Building up a national debt to a level that may not be supportable if investments do not pay off quickly enough? Is it better to play a long game, try to increase income by trade investments, tax increases, etc, until income levels make it possible to fund such developments? Or is there an alternative? I know in theory it might be possible to get another nation to fund you through subsidies but not sure that is a viable option.

I have found it's taking the right loan with the right bank, for example a Muslim bank cannot charge interest. Or you can take out a sinking fund, which Richard explained to me in a recent question. But I have found that in one game that despite millions of investment into trade I still have dropped in economic health.

Personally I like to build income through trade investment, if a nation is subsidising you, you are obviously going to get a question later saying, "you know all that money I leant you, I am calling in my debt". I think some nations naturally allowed themselves to go into debt, the Spanish quite often bankrupted themselves in pursuit of their goals.

Thanks Mark

That is very much my thought, building up trade to make money but good to know I'm not missing anything obvious.

Hadn't considered a sinking fund, need to go away and read up on them

Sinking Loan

A special kind of loan, a Sinking Fund can be set up by a bank whereby an amount of money is effectively loaned to the state in return for which a percentage of the nation's annual revenue (or part of it) is allocated against the debt. So, for example, you might be able to have a Sinking Fund (loan) of £500,000, but instead of paying a fixed rate of interest on the sum each year the bank providing
the loan would get a percentage of perhaps your tax revenue, your trade revenue, or of both, until it is repaid. The bank is at liberty to sell bonds, or a share, in ownership of a Sinking Fund they operate to third parties via exchanges. The capital of the loan isn't repaid by the revenue, that acts instead of making interest payments - other money is required to reduce the amount owed but there is no time limit upon doing so, but until all the capital is repaid the bank will retain the revenues allocated to it.

In game 8 as Portugal, I made a large loan from the Bank of England at a reasonable rate trying to jumpstart my economy, the catch was that I had to pay the interest with bullion. (needless to say paid off as soon as possible given the logistics). I am dubious as to whether it was worth the headache that it cost, since my economy didn't really seem to benefit that hugely from the investments.

That said, I didn't at the time spend much on EH raising investments, which I think is a mistake.

When I played the pope in Game 3, I had an enormous loan from the vatican bank at 4% (several times my annual income when I joined the game), to give you an idea of what the sweetheart rate is.

I would be cautious about paying too much in interest or you may end up bankrupting yourself if the investment doesn't pay off well enough.

Of course, if you borrow from somebody else's bank, maybe you can raise your honour enough to survive defaulting on the loan and crater their economy while you crater your own honour!

Thanks Deacon

Must admit it is the interest that always worries me...

...makes me miss being China in G2...had moneylenders (who don't appear in other games), summoned them to a banquet, at the end either they agreed to give me a gift of £1 million...or I'd cut their heads off...not just the Ottomans who have unusual business practices

I would think this would mostly just damage your economy, in the richard style of "there is no such thing as a free lunch", but might work for a newer player in an older game. Try it in a new game, and I'm sure richard would give you the money, and then crater your EH on the logic that you've just robbed the very merchants that drive your EH.

In Game 3, I did a lot to improve my revenues just by looking into tithes and making sure the right amount was flowing to the vatican and not into the pockets of various cardinals! So, I think in established games, there can be ways to try to catch up with all the other active players.

I think there was something different about China in G2...at least at that stage. when I tried this stunt, I had been playing the position for about 3 years real time (so 5 game years) and suffered no ill effects!

Mind you, it was the time I was going around cutting bits of merchants who were trading illegally so it was a very different time and place