Is Britain Going Bankrupt?

[Roach-Rampino]

The bond vigilantes are restive.

We are not yet facing a replay of the 1970s 'Gilts Strike', but we are not that far off either.
There is now a palpable fear that global investors may start to shun British debt as the budget deficit rockets to £118bn -- 8pc GDP -- or charge a much higher price for to cover default risk.
The cost of insuring against the bankruptcy of the British state has broken out -- upwards -- over the last month. Yes, credit default swaps (CDS) are dodgy instruments, but they are the best stress barometer that we have.

Today they reached 86 basis points, near Portuguese debt in the league table. For good reason. Alistair Darling has had to admit that the British economy faces the most sudden economic collapse since World War Two, and the worst budget deficit of any major country in the world.

Ok, this is a lot lower than Iceland, Ukraine, Hungary, and other clients of the IMF, but is significantly higher than Germany (35), USA (43), and France (49).

After trading at similar levels to our AAA-rated peers for years, we started to decouple in August and then began to soar in October.

We reached a fresh record the moment the Chancellor told the House of Commons that the budget would not return to its already awful condition until 2016.

Should we be worried? Yes.

Marc Ostwald from Insinger de Beaufort said Gilt issuance would reach £146bn in fiscal 2008/2009. Britain will have to borrow £450bn over the next five years.

This is an utter fiasco.

With deep embarrasment, I plead guilty to supporting the Brown-Darling fiscal give-away -- though with a clothes peg clamped on my nose. As the Confederation of British Industry and many others have warned, we face an epidemic of bankruptcies unless we tear up the rule book and take immediate counter-action.

The Bank of England's drastic rate cuts are a necessary but not sufficient stimulus. Monetary policy is failing to get traction because the credit system has broken down.

We face the risk of a rapid downward spiral if we misjudge the threat at this dangerous moment, as we sit poised on the tipping point. Besides, the whole world is now resorting to fiscal stimulus in unison under IMF prodding. Sticking together is imperative. If countries reflate in isolation, they can and will be singled out and punished. That is the lesson of 1931.

But this is not to excuse the Brown Government for the total hash it has made of the British economy. It presided over a rise in household debt to 165pc of personal income. How could the regulators possibly think this was in the interests of British society? What economic doctrine justifies such stupidity? Why were 120pc mortgages ever allowed? Indeed, why were 100pc mortgages ever allowed? Debt is as dangerous as heroin.

Labour ran a budget deficit of 3pc of GDP the top of cycle. (We had a 2pc surplus at the end of the Lawson bubble, so we go into this slump 5pc of GDP worsee off). The size of the state has ballooned from 37pc to 46pc of GDP in a decade, and will inevitably now rise further.

It is because Gordon Brown exhausted the national credit limit to pay for his silly boom that today's fiscal stimulus -- just 1pc of GDP (China is doing 14pc) -- is enough to rattle the bond markets. Our national debt will jump in what is more or less the bat of an eyelid from under 40pc of GDP to nearer 60pc -- according to Fitlch Ratings. It is enough to make you weep. But is this bankruptcy territory? Not yet. Britain will remain at the mid to lower end of the AAA club.

A Fitch study today estimates the "fiscal cost" of the bank bail-outs (which is not the same as just adding guarantees to the national debt) is 6.9pc of GDP for Britain -- compared to Belgium (5.7pc), Germany (5.8pc), Netherlands (6.3pc), and Switzerand (12.9pc). We are not alone in this debacle.
If and when the storm blows over, Britain should still have a lower national debt than Germany, France, or Italy. It will certainly have a better demographic structure that most of Europe (except France and Scandinavia), and less catastrophic pension liabilities than most.

The situation is desperate, but not serious -- as the Habsburgs used to say. Fingers crossed.

http://blogs.telegraph.co.uk/ambrose...going_bankrupt

[Fett]

Some good comments over at the telegraph site aswell. Were setting ourselves up for future generations hardship, I wish this would all just come off the rails now rather than trying to keep propping it all up, prolonging the pain.

[CzarJunkie]

I watched an interesting documentary on BBC2 last night regarding the USA's debt. We're pretty much in the same boat and come the middle of the century we'll be using most of our GDP to service our debts. So, in short, the answer is yes.

I'm currently looking for property in China, I'm determined to be one of the first economic migrants to the far east. I'm also making plans to start human trafficking from West to East, because white girls are gonna be big in China..........

[MajorFU]

I watched an interesting documentary on BBC2 last night regarding the USA's debt. We're pretty much in the same boat and come the middle of the century we'll be using most of our GDP to service our debts. So, in short, the answer is yes.

I'm currently looking for property in China, I'm determined to be one of the first economic migrants to the far east. I'm also making plans to start human trafficking from West to East, because white girls are gonna be big in China..........

LOL don't you want to stick around and enjoy your new labour utopia?

[Roach-Rampino]

For good reason. Alistair Darling has had to admit that the British economy faces the most sudden economic collapse since World War Two, and the worst budget deficit of any major country in the world.

After trading at similar levels to our AAA-rated peers for years, we started to decouple in August and then began to soar in October.

But this is not to excuse the Brown Government for the total hash it has made of the British economy. It presided over a rise in household debt to 165pc of personal income. How could the regulators possibly think this was in the interests of British society? What economic doctrine justifies such stupidity? Why were 120pc mortgages ever allowed? Indeed, why were 100pc mortgages ever allowed? Debt is as dangerous as heroin.

Labour ran a budget deficit of 3pc of GDP the top of cycle. (We had a 2pc surplus at the end of the Lawson bubble, so we go into this slump 5pc of GDP worsee off). The size of the state has ballooned from 37pc to 46pc of GDP in a decade, and will inevitably now rise further.

It is because Gordon Brown exhausted the national credit limit to pay for his silly boom that today's fiscal stimulus -- just 1pc of GDP (China is doing 14pc) -- is enough to rattle the bond markets. Our national debt will jump in what is more or less the bat of an eyelid from under 40pc of GDP to nearer 60pc -- according to Fitlch Ratings. It is enough to make you weep. But is this bankruptcy territory? Not yet. Britain will remain at the mid to lower end of the AAA club.


http://blogs.telegraph.co.uk/ambrose...going_bankrupt

I watched an interesting documentary on BBC2 last night regarding the USA's debt. We're pretty much in the same boat and come the middle of the century we'll be using most of our GDP to service our debts. So, in short, the answer is yes.

Do you still lay the blame at the feet of the Tories, despite this seemingly accurate synopsis of Labour's shortcomings in managing Britains economy for the past decade?

[CzarJunkie]

Do you still lay the blame at the feet of the Tories, despite this seemingly accurate synopsis of Labour's shortcomings in managing Britains economy for the past decade?

I don't believe propaganda spouted by a tory rag like the Telepgraph, if thats what your asking and more fool you if you think our situation would be any better under a Tory government. The Telegraph can be forgiven in part, they're still reeling from the realisation that capitalism is horribly flawed.

[CzarJunkie]

LOL don't you want to stick around and enjoy your new labour utopia?

Got fuck all to do with Labour, our national debt has been growing for decades. Once we became too rich, we lost our manfacturing base and we bagged ourselves a trade deficit. Then we were always on to a loser. Doesn't matter who is in power, it's all the way to the poorhouse for us and I doubt I'll stick around for that.

Anyone who has the means to get mobile should be looking at it as a long term plan. Europe will be the new 3rd World, in 100 years the Chinese equivilant to Bono will go on TV to urge his fellow citizens to take to the streets to demonstrate in an effort to get the Government to wipe out debt owed by Europe and the USA. That's how bad it's gonna get.....

[Roach-Rampino]

Got fuck all to do with Labour, our national debt has been growing for decades. Once we became too rich, we lost our manfacturing base and we bagged ourselves a trade deficit. Then we were always on to a loser. Doesn't matter who is in power, it's all the way to the poorhouse for us and I doubt I'll stick around for that.

Anyone who has the means to get mobile should be looking at it as a long term plan. Europe will be the new 3rd World, in 100 years the Chinese equivilant to Bono will go on TV to urge his fellow citizens to take to the streets to demonstrate in an effort to get the Government to wipe out debt owed by Europe and the USA. That's how bad it's gonna get.....

I'm not so anti-Labour or blinkered that I don't want them to come up with a solution to all this, I hope that the measures they take will work out and get things back on track. I also hope that David Chase writes another season of Sopranos with a role for me in it.

I will move abroad, kids and all when the time comes; I've got the means and the motivation but not just yet.

[4me2]

Got fuck all to do with Labour, our national debt has been growing for decades. Once we became too rich, we lost our manfacturing base and we bagged ourselves a trade deficit. Then we were always on to a loser. Doesn't matter who is in power, it's all the way to the poorhouse for us and I doubt I'll stick around for that.

Anyone who has the means to get mobile should be looking at it as a long term plan. Europe will be the new 3rd World, in 100 years the Chinese equivilant to Bono will go on TV to urge his fellow citizens to take to the streets to demonstrate in an effort to get the Government to wipe out debt owed by Europe and the USA. That's how bad it's gonna get.....

They'll be doing a Chinese Band aid song to raise money for us.

" Feeeeeeeeeeed the Blits do they know its the year of the dog at all ?

[BBK]

We're all fucked eh. The country has no money, yet we still insist on spending billions on fighting two wars, roughly 3 billion quid in 2008. So thats what, £15, £20 billion since we started fighting a war for the USA? That's not a small amount of money to throw down the pan. Now we're dropping taxes only to increase them in a few years - presumably when Labour won't be in power any more, but personally I still find Thatcher selling the utilities largely culpable for the state of the country - more billions of pounds sent in the direction of foreign shores, just to have basic things like the ability to cook and keep warm.

I really fear for my kids. They won't be able to heat their homes, but on the plus side they should be able to pick up a 4 bed detached for about £15

[the.insane]

but on the plus side they should be able to pick up a 4 bed detached for about £15

thats easy to say, but whers the £15 gonna come from ?

[cronus71]

China will be the new leader of the world's economy. I'm sure I said it two years ago, within the next 5 to 10 years they are coming. Heads-up, there are quite a few of them, they have money and they want to be Western-like.

I hope you guys have limits on foreign ownership through a quota system for land and property. We don't, here in Finland, hence the Russian oligarchs are buying like there's no tomorrow, keeping property prices at a high-level

[MajorFU]

I agree with you CJ this wasn't all down to the current labour govt after all they inheritted the economy but you have to admitt that they could have done alot more and more importantly should have acted 5 or 6 years ago to prevent things from being as bad as they are now as well as surely agreeing that they should have not entered into the war.

The people who voted them in should be ashamed of themselves and while I admitt my veiws on labour voters are harsh and offending they now all have to admit they made a mistake and are responsable for the mess we are in. I honestly think they were played for suckers by a well sold product at a time where everyone assumed change would be for the better. Now we are 15 odd years from ousting the govt that really had the interests of our economy at heart and they do not have the strength to take it back over.

The govt needs to change and the country needs change more now then we did when everyone was asking for change 15 years ago when they got voted in. Labour has not worked and I dont think the torries have the balls and yes I might sell up while its still relatively good and fuck off.

My flat peaked at £190,000 and is prolly £170,000ish but then i got a 50k morty. I stand to walk away with £100k to start a new life so I wont be effected by the mistakes of others , although I do firmly believe those who made the mistake should stick around and pay for it. Thats not to say I do not feel sorry for labour voters, you are the proverbial old ladies who spent the life savings on wallcote after a 4 hour high pressure salesperson talked them into signing on the doted line.

Harsh but fair

[CzarJunkie]

I don't understand you tories, the word 'conservative' means conservative government and that doesn't include telling financial institutions how to lend money.

You can blame the government of the day all you want for the present ills, however, we all have some responsibility in this. The reason the housing market exploded was due to cheap and irresponsible lending coupled with the irresponsible borrowing of individuals. The government could have intervened but had they done so, the first people to have complained would have been the tories.

The Labour government gave the public what they wanted, I'm not claiming they are perfect but I don't see how a tory government would have avoided making the same mistakes. They certainly wouldn't have avoided the credit crunch or any of the economic turmoil that surrounds us. They may have come up with a different plan to rescue the economy and thats the only difference between the 2 parties.

I don't hear any solid solutions coming from the tories on this, just rhetoric. It's about time party politics was put to one side and if they truly wanted the economy to recover they'd offer to help the government instead of weakening our position and causing a run on the currency.

The tories are playing party politics while the economy tanks. So, given their obvious contempt for me and every other British citizen I'll be voting Labour again come the next election.

[MajorFU]

The Labour government gave the public what they wanted, I'm not claiming they are perfect but I don't see how a tory government would have avoided making the same mistakes. They certainly wouldn't have avoided the credit crunch or any of the economic turmoil that surrounds us. They may have come up with a different plan to rescue the economy and thats the only difference between the 2 parties.

As answered in the previous thread this was raised, the torries did actually do this which was the casue of the last recession, they saw the credit problems spirraling out of control and jacked the interest rate to stop people borrowing while at the same time giving the banks more income to cover losses. this caused what was in the grand scheme of things a minor recession, and it will seem minor when compered to the financial meltdown ahead.

Are you saying you are going to vote in a govt who let this happen rather than doing something to put the brakes on while it was possible? then move to china and let others pay for your ignorance, top boy

[CzarJunkie]

Are you saying you are going to vote in a govt who let this happen rather than doing something to put the brakes on while it was possible? then move to china and let others pay for your ignorance, top boy

I'll vote for a party with answers, not for a party who hasn't got a clue and who uses the situation to score party political points. Let's be honest, until the credit crunch came along the Tories had no chance of being the next elected government.

They are pinning their hopes on the nation suffering for the next 18 months, because if we don't they'll shit out.

Not sure what the 'top boy' is referring to though, just makes you sound like a twat.

[tam9]

no personal insults in here CJ, rules are roolz

[CzarJunkie]

no personal insults in here CJ, rules are roolz

When VIP becomes MOD I might take notice......

[tam9]

When VIP becomes MOD I might take notice......

That is no way to speak to a future mod. your fsckin card is marked boyo

[Goldberg]

I think part of the solution would have been to pay all our mortgages off rather than bail the twatting banks out!! Isn't it wrong that when a bank goes under your savings are wiped out but not your debts........

I heard the other day that bankers are forefitting their bonuses this xmas! I should fucking hope so!! They maybe scapegoats but I hate the twats for more reasons than just the credit crunch.

As for fucking off overseas, Australia is pretty much debt free. They spent years paying off their debts to avoid such gloom as we are all experiencing (with more to come) right now.

G'day mates!