What With All The Bad Uk Economic News Today.

[markinspain]

You know, Gordo stands up in parliament and tells the rest of the world. 'Sorry, we can't pay you your money back'.

[porca misèria]

You know, Gordo stands up in parliament and tells the rest of the world. 'Sorry, we can't pay you your money back'.

He upsets rest of the world. Including tens of millions who have the vote in the UK.

[Toto deVeer]

No doubt the UK would be declared a terrorist state, just like Brown declared Iceland one when he learned their banks were going down.

Of course, Brown and his team first had to violate European Law by transferring the Icesave obligations to the national balance sheet, but this was necessary before he could declare Iceland to be a terrorist state. This thuggery appears to have worked quite well, as Iceland's national economy will soon be supplying £billions of codfish to the British and Dutch citizens, while those few thousand still alive in Iceland enjoy starvation.

[huw]

Cost of Sovereign Default (BoE financial stability paper)

The Costs of Sovereign Default (IMF working paper)

Loads of sovereign defaults have happened; the sovereign entities are still here. IMO the consequences would be a general election PDQ following an overnight collapse of the pound, imports and consumption ... as long as the new government didn't take the easy way out of "going back" on the default. Once the economy had re-balanced things could recover at more sustainable levels.

We investigated the empirical basis of the costs of sovereign defaults in its different versions.

Our findings suggest that default costs are significant, but short lived. Reputation of sovereign

borrowers that fall in default, as measured by credit ratings and spreads, is tainted but only for a

short time. While there is some evidence that international trade and trade credit are negatively

affected by espisodes of default, we could not trace it to the volume of trade credit, as the

default literature suggests. Debt defaults seem to cause banking crises, and not vice versa, but

we found weak evidence to suggest the presence of default-driven credit crunches in domestic

markets. Finally, defaults seem to shorten the life expectancy of governments and officials in

charge of the economy in a significant way.

[markinspain]

Cost of Sovereign Default (BoE financial stability paper)

The Costs of Sovereign Default (IMF working paper)

Loads of sovereign defaults have happened; the sovereign entities are still here. IMO the consequences would be a general election PDQ following an overnight collapse of the pound, imports and consumption ... as long as the new government didn't take the easy way out of "going back" on the default. Once the economy had re-balanced things could recover at more sustainable levels.

Thanks for the links Huw. I'll read them over the weekend. You seem to suggest that it is a viable option which would be a terrible short term hit but lead to a quicker recovery.

[Toto deVeer]

If the UK defaulted, you can be sure that it would lead to a cascade of defaults elsewhere.

During the GD, the sovereign default rate reached more than 60%.

The UK/Europe/IMF just last month put a gun to Iceland's head to ensure that they would not default on their debts (that includes their private banking obligations), because this would start a cascade.

[Joey Buttafueco Jr]

Can someone tell me how much foreign curency denominated debt UK has issued?

[Toto deVeer]

If you include those debts that are backstopped, such as the major banks, it would be mostly dollars and probably around $3-4 trillion.

[Kyoto]

HPC main forum is looking particularly black today. Get a feeling we are close to markets turning.

[Joey Buttafueco Jr]

If you include those debts that are backstopped, such as the major banks, it would be mostly dollars and probably around $3-4 trillion.

Net?

As far as I'm aware all our outstanding debt is sterling denominated. UK CDS spread is a lot tighter than a few months back

[Joey Buttafueco Jr]

HPC main forum is looking particularly black today. Get a feeling we are close to markets turning.

That's the first time I've heard that on here all minute.

[Guest Parry aka GOD]

Thanks for the links Huw. I'll read them over the weekend. You seem to suggest that it is a viable option which would be a terrible short term hit but lead to a quicker recovery.

Yeah right! You'll be out on your bike this weekend peddling round hills.

[piece of paper]

What With All The Bad Uk Economic News Today., What would be the consequences of debt default?

More to the point, why isn't the FTSE responding. Normally, a shit-fest sends it rocketing.

p-o-p

[Mugwump Boy]

Can someone who has a better grasp of economics than I do answer this question for me, please?

What happens to STRs holding GB pounds in the event of a default? If your fund is solely going to be used to buy a house will you be screwed as the pound collapses or would house prices also fall in correlation since no one would have money to buy bricks n mortar apart from gold bugs?

It's a genuine question - though admittedly probably also an admission of how thick I am...

[piece of paper]

Can someone who has a better grasp of economics than I do answer this question for me, please?

What happens to STRs holding GB pounds in the event of a default? If your fund is solely going to be used to buy a house will you be screwed as the pound collapses or would house prices also fall in correlation since no one would have money to buy bricks n mortar apart from gold bugs?

It's a genuine question - though admittedly probably also an admission of how thick I am...

You get a choice. Nice new house or supper?

You don't really because the vendor wants to be paid in Gold/Dollars/Yen or whatever. There must be a couple of Zims who post that can advise from experience.

p-o-p

[huw]

Can someone who has a better grasp of economics than I do answer this question for me, please?

What happens to STRs holding GB pounds in the event of a default? If your fund is solely going to be used to buy a house will you be screwed as the pound collapses or would house prices also fall in correlation since no one would have money to buy bricks n mortar apart from gold bugs?

It's a genuine question - though admittedly probably also an admission of how thick I am...

Depends if someone with foreign currency is bidding for the house you want

i.e. would a sterling collapse lead to an asset grab by foreigners?

[huw]

Thanks for the links Huw. I'll read them over the weekend. You seem to suggest that it is a viable option which would be a terrible short term hit but lead to a quicker recovery.

That's my view -- I think an event on the scale of a UK default would lead to new monetary arrangements worldwide, including massive debt (and savings write downs) which would be painful but it would avoid the "lost decades" syndrome that we face as we continue with this unrepayable debt still on the books.

[Guest Parry aka GOD]

Depends if someone with foreign currency is bidding for the house you want

i.e. would a sterling collapse lead to an asset grab by foreigners?

Without doubt or question it would. Few countries have such lax rules on foreign property ownership as the UK. They need to learn to take care of their own.

[swissy_fit]

Depends if someone with foreign currency is bidding for the house you want

i.e. would a sterling collapse lead to an asset grab by foreigners?

Yup, for sure.

A LOT of land in Argentina is foreign-owned now, bought since the devaluation of the peso. I looked at it myself.

Trouble is their govt is worse than ours, so the chances of making anything from it in the short/medium are pretty limited. Which is one of the reasons I didn't do it.

The bulk of land wouldn't be sold to foreigners in the UK, because it's owned by people or organisations who wouldn't need the money, like the Church, the Oxbridge colleges, the govt, the gentry. However you could expect a lot of repossessed houses to be bought from abroad.

[Executive Sadman]

Who cares? We've got nukes so theres not much they can do other than kiss our pasty hairy poverty stricken asses. One good thing about this govt is they seem to actually realise the value of a nuclear deterrent.

[Executive Sadman]

realistically though it would probably involve sanctions. We dont export much so wouldnt lose much and if we told the frogs and krauts to stick their fishing quotas up their miserable eurotrash asses then we could be self sufficient in food anyway.

[huw]

realistically though it would probably involve sanctions. We dont export much so wouldnt lose much and if we told the frogs and krauts to stick their fishing quotas up their miserable eurotrash asses then we could be self sufficient in food anyway.

No reason to suppose there'd be deliberate punitive sanctions taken IMO (such as trade sanctions, if that's what you're thinking about). Loss of creditworthiness, prestige and currency value would be the main repercussions, as they are for any sovereign defaulter.

As for the nukes ... plenty of non-nuclear countries have defaulted on sovereign debt, nobody tries to "do anything about it", what are you going to do, seize all the gold that's backing those paper promises?

[markinspain]

Cost of Sovereign Default (BoE financial stability paper)

The Costs of Sovereign Default (IMF working paper)

Loads of sovereign defaults have happened; the sovereign entities are still here. IMO the consequences would be a general election PDQ following an overnight collapse of the pound, imports and consumption ... as long as the new government didn't take the easy way out of "going back" on the default. Once the economy had re-balanced things could recover at more sustainable levels.

I've had a quick read of these two links now and what surprised me the most is how often it has already happened and that the consequences for the countries' economies are not that bad. The problem seems to be left with the creditors who have no legal recourse as they would for private businesses. According to the IMF paper, the four main conseqeunces are:-

1. Reputational costs.

2. International trade sanction costs.

3. Costs to the domestic economy through the financial system.

4. Political costs.

Other impacts could be that after the initial output drop, output can actually increase (for countries that actually make

stuff). Also, the impact could be deflationary or inflationary.

A couple of interesting pieces that I've selected.

Poliitcal Implications of Default. Sometimes politicians and bureaucrats seem to go to great lengths to postpone what seems to be an unavoidable default. In the case of Argentina, for instance, it is reported that even Wall Street bankers had to work hard to persuade the policymaking authorities to accept reality and initiate a debt restructuring. There seems to be evidence that defaults do not bode well dor the survival in office of finance ministers and top executive politicians.

The IMF conclusion states 'Our findings suggest that default costs are significant, but short lived. Reputation of sovereign borrowers that fall in default, as measured by credit ratings and spreads, is tainted but only for a short time. While there is some evidence that international trade and credit are negatively affected by episodes of default, we could not trace it to the volume of trade credit as the default lieterature suggests'.

I'm not sure about this bit. 'Debt defaults seem to cause banking crises, and not vise versa, but we found weak evidence to suggest the presence of default-driven credit crunches in domestic markets'.

Finally, the appendix A highlighted in the BofE paper about Argentina seems remarkably close to the UK right now.

Edited September 20, 2009 by markinspain

[ChumpusRex]

Depends if someone with foreign currency is bidding for the house you want

i.e. would a sterling collapse lead to an asset grab by foreigners?

I think this is the most likely outcome, provided there remains some semblance of rule of law. Obviously, if the country descends into anarchy, then people will dash for the exits - but a currency collapse/credit collapse is a magnet for foreign investors (assuming the result isn't state collapse).

In fact, it's already happening - approx 70% of property sales this year in 'prime' London have been to foreign buyers paying cash. (25% discount on the sterling price + 35% discount on the exchange rate = tasty discount)