Advertisement
Merryn's Blog

Forget Spain - Britain's debts look pretty painful too

The markets are closing in on Spain. But we shouldn't get too comfortable - our debt burden is looking increasingly intolerable.

The markets seem to have it in for Spain today. Indeed, the prospect of the euro splintering entirely is increasingly being discussed in the mainstream press.

But Britain shouldn't get too comfortable, reckons Tim Price of PFP Wealth Management. In his Price Report newsletter, he notes that "The UK's total debts sum to over 450% of GDP. At this level, some form of debt restructuring is almost inevitable. There are four possible ways out of the mire:

Advertisement - Article continues below

Fast economic growth, which looks hugely implausible now.

Belt-tightening, which so far has been the preferred choice of our coalition government.

Currency devaluation, which is arguably already happening on the sly.

Explicit default, such as that of Russia in 1998 or Argentina between 2002 and 2008.

"As Ireland has found to its cost, austerity in the midst of a painful debt deflation may be a lost cause. Crushing the last fragments of life out of a sickly economy is not likely to be the best method for boosting government revenues or of repaying debts. But once you start to factor in unfunded liabilities (not least, pensions) the debt burden looks even more intolerable:

10-11-26-blog

"As this chart shows, pension liabilities make a bad problem doubly worse. Factor in the off-balance-sheet liabilities of the UK and US government, and the question becomes: how long before some form of default is inevitable?"

Advertisement
Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/economy/uk-economy/601429/mervyn-king-why-the-covid-pandemic-is-a-classic-example-of-radical
UK Economy

Mervyn King: why the Covid pandemic is a classic example of radical uncertainty

This week, Merryn talks to ex-governor of the Bank of England Merryn King about the pandemic and how to prepare for a future that is unknowable; the g…
2 Jun 2020
Visit/economy/uk-economy/601426/stealth-debt-jubilees-are-here-and-thats-a-good-thing
UK Economy

“Stealth” debt jubilees are here – and that’s a very good thing

We may not have had a full-scale debt jubilee, but many Covid relief measures quietly amount to “micro-jubilees”. That’s something to celebrate, says …
1 Jun 2020

Most Popular

Visit/economy/uk-economy/601427/covid-bounce-back-loans-and-inflation
UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020
Visit/investments/commodities/601433/commodities-possibly-the-biggest-opportunity-in-todays-markets
Commodities

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Visit/economy/global-economy/601420/james-ferguson-the-virus-the-lockdown-and-what-comes-next
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020