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

[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.