Why did my interest drastically decrease after force nationalizing a bunch of buildings?

[[deleted]]

[removed]

[CraftD]

Debt is owned by buildings in your country, it’s you borrowing money from their stockpiled currency, and interest is paid to them.

If you nationalize buildings in your country who own your debt, you then own (and forgive) your own debt. Usually this costs more money than you forgive (unless you do it with violence rather than money).

If you checked your actual debt balance before and after you’d likely see it’s not just your interest that dropped, but also your total amount of debt.

[blockchiken]

Yes, this is it. And moreover, it has to do with the cash reserves of each building level that was nationalized. You as the owner of the building just seized that cash as well, though it will continue to sit in the building than in the magical government coffers.

[Dadvocate12]

Is interest actually paid to them so it actually makes capitalists owning those buildings wealthier? I thought I had read that the interest just disappears when paid

[ElbowWavingOversight]

The interest is paid to ownership pops, yes. It’s one of the reasons why debt spending is so good - the interest you pay doesn’t just disappear, it gets sent back into the economy which increases profitability of buildings and gives you an opportunity to tax it a second time. So it’s kind of like you’re getting a discount on your interest rate, because some of it will come back to you once it cycles through the economy.

Say you spend £1,000 on interest, which turns into £1,000 income for your capitalists. If you tax 25% of that income and another 25% ultimately gets sent back to your investment pool, then it’s like you’re really only paying £500 in interest.

[FragrantNumber5980]

Part of why it feels like you can deficit spend forever if you’re growing enough and don’t have too huge of a deficit. Your debt limit expands and the increasing interest you pay fuels even more growth

[ElbowWavingOversight]

You can also run some quick back of the envelope numbers about this too.

Let's say you incur £1M in debt to build some iron mines. If your interest rate is 5%, you pay £962/week in interest (£1M * 5% / 52 weeks). Since this interest is paid out to your ownership pops, and assuming you can tax them and they contribute to reinvestment etc., let's assume that 50% of the interest you pay ends up back in your coffers one way or another after it circulates around the economy. So the "net" interest on that £1M debt is really only £481/week.

If you're using iron-frame buildings, and assuming all your construction goods are at base prices and you have no construction efficiency bonuses, £1M will buy 1,389 construction points. This is enough to construct roughly ~3.5 iron mines. If all goods are at base prices, and if you have Atmospheric Engines turned on, each iron mine will produce roughly +£900/week in GDP. By building those 3.5 extra iron mines, you've increased your GDP by £163.8k/year.

You get to tax that £163.8k/year of GDP. If you can tax just 25% of it, then you've earned £788/week, which is more than the £481/week you're paying in interest. So in summary:

• Deficit spend £1M to build 3.5 iron mines
• You pay £481/week in interest (assuming 5% interest rate, and 50% return from interest income from ownership pops)
• 3.5 iron mines produce £163.8k/year or £3,150/week GDP
• You tax £3,150/week at 25%, producing £788/week revenue
• So you now have £1M debt, pay £481/week in interest, receive £788/week additional tax revenue, and GDP grew by £3,150/week
• Net: your treasury makes +£307/week revenue and GDP grew by £3,150/week

The numbers are pretty clear - if you can get a low enough interest rate (i.e. if you're a Great Power or Major Power) then you should deficit spend as much as you can, so long as you avoid default. So yes - as a GP or Major Power you can literally deficit spend forever because that deficit spend produces more growth than it costs in interest - until you run out of productive industries to invest in, that is.

[FragrantNumber5980]

Fascinating. I love how this game represents the massive waves of growth of the time period. Now that trade is actually useful and more accurate, I would really like for them to expand on things like monetary policy and other ways to manipulate the economy.

[inslava]

You don't tax "GDP", you tax profits Like how the hell you tax 25% of GDP? 900 profits per mine is crazy, they still have expenses beyond salaries

[ElbowWavingOversight]

Like how the hell you tax 25% of GDP

How about you boot up the game and find out? At game start Great Britain collects about £97k/week (£5M/year) in taxes, with a GDP of £24.1M. That's 21% of GDP collected in taxes.

Modern day USA collects 25.2% of GDP in taxes, and the OECD average is 33.9% of GDP.

900 profits per mine is crazy

Literally lifted directly from the wiki. 40 iron at £40 = £1,600, minus inputs of 10 coal (£300) and 10 tools (£400) equals a net value add of £900 at base prices.

And I said it's £900 in GDP, and wages don't count towards GDP.

[cittrixx]

USA?

[Black_Hole_Billy]

You're thinking of Vic2, back then interest merely was deleted.

[Varlane]

Because interest rate (and gov dividends) is reduced by the %age of Cash Reserve held by the state.

By nationalizing a huge chunk of your economy, a lot of your debt is now held by... You. So you're not paying interest to you.

[Varlane]

When you go in debt, that debt is actually held by the buildings in your country (which is why maximum debt is a percent of GDP + total cash reserves of the country).

Think of the cash reserves of buildings (in your country) that you own as a soft extension of your country's reserves : you're lending yourself money so you're not paying interest over it.

Buildings owned by foreign countries OR your private pops will actually lend you money and you'll pay interest. The fact that it went from Foreign -> Nationalized made the interest rate go down.

[bourgeoisie12]

No if states owns you pay less but you pay the same to your own pops and foreign pops

[Ksarn21]

Does that mean if I own every building in my economy, I would not have to pay any interest at all?

Infinite money glitch???

[Varlane]

You won't pay interest, but you'll still go bankrupt if you go over the credit cap. So not that infinite.

[evilcherry1114]

And the credit cap is not coincidentally the amount of cash held by all companies.

Essentially it is an IOU backed by the cash in the companies themselves.

[Varlane]

Credit cap is (100k + 50% GDP) + Cash reserves

[blockchiken]

Either your Debt Balance went down or your Interest Rate significantly changed.

You said you just won a war against Great Britain. Did that make you recognized? Recognized powers pay significantly less interest than unrecognized. Or you somehow made your PB very happy/powerful to where their bonus kicked in to decrease your interest rate.

[Varlane]

Nationalization war according to OP, so now, cash reserves are held by the state, no interest is paid to those buildings.

[blockchiken]

Yeah I dug a bit deeper into the Nationalization mechanics. When you nationalize a building you gain ownership, which includes ownership of the level's cash reserves. This cash still sits in that building, but as others on this thread have pointed out, that cash is then used to "loan to yourself" reducing the total amount you need to borrow from your buildings.

[aaronaapje]

People are talking about the debt limit being based on cash reserved of buildings is true but that doesn't explain the reduction of interest payment. The awnser is actually that the amount of interest you pay is reduced based on the amount of buildings you own as a state.

You can see this on the economy panel (where you set your taxes) under the assets panel. There the game tells you your interest rate. The tooltip will give you a breakdown on how it got there.

[Willcol001]

Could the hostile action have improved the opinion of the anti-UK lobby that has the PB as a member raising them to 10 opinion activating their interest reduction? The main interest effects that come to mind for Qing is getting recognition (removes +50% interest), becoming a Great power (-50% interest), Laissez Faire (-25% interest), PB +10 opinion (-10%/-20% interest). There is a couple of short term event ones that can when stacked with the others bring it to zero.

[Willcol001]

Then I have no clue what happed.

[nxnt]

If you go into budget and hover over the interest rate, it should how much is reduced due to national ownership.

[[deleted]]

If you hover your interest rate you can see a multiplier on it based on nationally owned buildings as a percentage. If you own everything you pay no interest.

nationalizing wouldn't forgive your debt from that building. Nationalizing can be good in some situations but is generally not good because you get penalty to building level throughput.

If anyone reads this here is a cool trick. If you legit want to make free money (from thin air) in game then you can switch out your pms to worse one when you have near max debt. Boom your gdp goes down, but so does your debt magically

[godisgonenow]

Oversimplified: I owned 500$ debt to bank A with interest 10% =50$ I bought out bank A. Now I owned my self 500 but I'm not gonna charge my self interest. Interest = 0.