Pwc - Uk's Total Debt Forecast To Hit £10 Trillion By 2015

[_w_]

Happy days...

Name me one single country (including the naughty Chinese) that is not utterly delighted with Ben's inflationary printing and I'll call BS.

http://www.telegraph...on-by-2015.html

Property-related borrowing and lending between financial institutions helped the collected debt of households, businesses and government balloon from roughly twice gross domestic product (GDP) in 1987 to around 5.4 times by 2009, when total debt stood at £7.5 trillion, according to the report.

Despite government austerity measures, the firm's latest economic outlook sees the UK's debt to GDP ratio sticking near historic highs as borrowing hits £10.2 trillion by 2015.

But if the economy does not perform as well as expected, one plausible alternative scenario could still see the debt burden soar as high as 5.8 times of GDP, the report said.

Deleveraging will go well beyond the immediate challenge of getting public finances under control, PwC warned. While attention is on reining in government borrowing, the "debt explosion" seen since the mid-1980s has been most marked in the private sector, it said.

Even in 2009, government debt was still less than a sixth of the size of the private sector's total debt, which grew as financial institutions geared up in search of higher returns on equity and pre-recession house price rises fuelled mortgage lending for households.

The increased burden has so far been supported by low interest rates, but these are likely to rise "significantly" over the next five years, said PwC. The firm believes interest rates on mortgages may end up higher than before the recession, as tougher regulation pushes up lenders' costs.

The projections will stoke fears for households kept afloat by near-zero rates.

"The UK's addiction to debt has reached alarming levels during the past decade," said John Hawksworth, chief economist at PwC.

The unprecedented levels of private sector debt would, sooner or later, have to be addressed, "either through debt being run down sharply, which would risk triggering another recession, or more likely through a persistently heavy debt service burden that could dampen economic growth for decades to come".

He added: "Either way, deleveraging will be a painful process for the UK."

Separately, the Organisation for Economic Cooperation and Development said the leading economies appear to be diverging as they recover, with the UK among those facing a downturn.

While the organisation's composite leading indicators (CLI) – a measure of economic turning points – stayed steady for its 33 members as a group, there were marked differences between rival nations.

Signs pointing to a "moderate downturn" in the UK, Canada, France, India and Italy offset indicators of continuing expansion in Germany, Japan, the US and Russia.

Indicators for Brazil and China were worse, implying industrial production will fall below longer-term trends.

Edited November 9, 2010 by _w_

[Si1]

I can repeat a point I have heard and agree with - the financing costs of the baby boomers retiring across western nations will push real interest rates over a period of decades, thus depressing the values of leveraged goods like property - this will be a clear secular bear market

don't know how this will effect the stockmarket - lower growth but not sure about long term bear market

[_w_]

I can repeat a point I have heard and agree with - the financing costs of the baby boomers retiring across western nations will push real interest rates over a period of decades, thus depressing the values of leveraged goods like property - this will be a clear secular bear market

don't know how this will effect the stockmarket - lower growth but not sure about long term bear market

It is an impossible situation unless they find a way to inflate the debt away. Bernanke is giving these countries the inflation they need with the added benefit that they can blame the US for it !

Margins are going to be under tremendous pressure for a while for companies that do not have exposure to emerging markets.

[_w_]

Dr Strangelove Or How I Learned to Stop Worrying and Love “Inflation”

By Ben Davies, CEO of Hinde Capital

November 9 (King World News) - Stanley Kubrick’s 1964 Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb satirised the nuclear threat of the Cold War. At Hinde we felt it was an apt analogy for the farce we are experiencing in monetary and fiscal policy around the globe today.

The film, which starred the brilliant Peter Sellers depicts how a deranged US Air Force General Jack Ripper sends his nuclear bombers to destroy the U.S.S.R., whilst the U.S. President tries desperately to recall the bombers to evade a nuclear apocalypse. The Soviet’s respond in kind saying they will trigger a “Doomsday Device”. Dr Strangelove, the evil scientist declares that once activated it is essential that not only should it destroy the world in the event of a nuclear attack but also destroy the world if anyone attempts to deactivate it. Hardly a deterrent for a nuclear bomb. In his paranoid mind General Ripper thinks he will save the world from the Communist threat. The irony cannot be lost on us all. Heads of States and central bankers alike believe that by supplying the inflation bomb vis a vis defacto deficit financing they will save the day.

Mervyn King plays the part of Major “King” Kong illustrated above who rode the bomb in, whooping and hollering like a cowboy riding rodeo style. Mervyn is riding the inflation bomb right into the heart of the economy. Ben Bernanke has already detonated the bomb and in truth the response of neighbouring central bankers is to detonate their doomsday deterrents in order to maintain the status quo. Monetisation of assets, bonds, ETFS, and anything tangible is part of the ‘current account’ game. If a nation monetises its debt they hope to devalue their currency and hope to spur growth through exports, whilst whipping up some good ‘ol inflation rodeo style. To boot it must just erode the value of their debts.

For now it appears to be working in the UK. Nominal GDP is rising, so UK debt to GDP levels is falling. Remember debt is fixed while GDP grows nominally. The real burden of debt is eroded as inflation rises unexpectedly. King has monetised 100% of the UK fiscal budget deficit, which was 11.5% of GDP. Public spending in the UK is 45%, which means the UK is monetising almost 25% of all government spending.

According to Peter Bernholz, Professor Emeritus of Economics, University of Basle, Switzerland:

“The figures demonstrate clearly that deficits amounting to 40 percent or more expenditures cannot be maintained. They lead to high inflation and hyperinflations…”

High (hyper) inflation is caused by financing huge public deficits through money creation. As Professor noted in his empirical studies, even deficits amounting to 20% or more of expenditures have triggered hyperinflation in all but four cases sampled. So the UK is a prime candidate for an implicit or inflationary default.

The UK is still the most leveraged country in the world per capita. Debt numbers have not fallen they have merely been re-distributed from the private to the public sector. A socialisation of losses if you will. UK overall debt is nearly 5x GDP, but if we included unfunded liabilities such as pensions etc. it is 6.5x GDP. The harsh truth is that UK debts are too large to solve by spending cuts. Nominal spending cuts do not exist. The UK has undertaken £326bn of spending today and by 2014/15 it will undertake a slightly higher £328bn of spending. The UK government has just not maintained spending in line with inflation. So the UK has “real” cuts but no actual nominal cuts. Inflation plays mind games with us all.

Just like in the film Dr Strangelove the “whole point of the Doomsday Machine is lost if you keep it a secret. Why didn't you tell the world?”

Dr Strangelove responded sheepishly – “it is supposed to be announced the following week at the (Communist) Party Congress because the Premier loves surprises." Replace Mervyn or Bernanke in that statement and now we begin to understand their plan. Talk about deflation, talk about lack of “real” growth and just may be they can convince the voters there is no inflation or loss of our purchasing power.

The gold and silver markets are telling you another story. “Gold is the hedge against political instability and government default.” If you don’t think the UK or for that matter another country can’t default implicitly or even explicitly, I think one should go and sit under a big tree and really contemplate the facts. We are bankrupt actually and morally. Mervyn knows it and despite his desire to split the banks and get rid of fractional reserve banking, he knows he is powerless to alter the course of history which suggests a default of some kind is inevitable.

[ken_ichikawa]

Well this is GOOD news! In that 15 trillion in 2015 will buy a loaf of bread!

[LiveinHope]

Just wait until the next decent hurricane hist South Florida. Sea level rise already will ensure massive flooding that it is estimated the whol global insurande industry cannot afford. And yes great minds in the US gov't are working on this. It will make our debt look quite small.

[ken_ichikawa]

Just wait until the next decent hurricane hist South Florida. Sea level rise already will ensure massive flooding that it is estimated the whol global insurande industry cannot afford. And yes great minds in the US gov't are working on this. It will make our debt look quite small.

They'll just use a technicality to get out of it, like insurance companies always do... call it an act of god or something like that and thus no insurance cover! Insurance is always a scam anyway insurance companies will try worm out of perfectly legitimate claims! Jase (before he was killed in an accident) was shunted from behind at traffic lights. And his company tried to worm out of it for a very long time. He was killed before they paid out though which meant they won....

meh insurance where you win only if you lose, but even when you win you lose.

[Si1]

Just wait until the next decent hurricane hist South Florida. Sea level rise already will ensure massive flooding that it is estimated the whol global insurande industry cannot afford. And yes great minds in the US gov't are working on this. It will make our debt look quite small.

do you actually understand insurance AT ALL ?

[LiveinHope]

Yes and so do the US gov't

[LiveinHope]

Yes and so do the US gov't

but explain it to me

Sorted out the fat thumb this time :-)

[Si1]

what do you need explaining?

[LiveinHope]

what do you need explaining?

why the funds required by the flooding of southern florida do not exceed those available in the global insurance industry

or why this is not preoccupying the US gov't and their home and foreign policy

But this is all OT, just a very silly non sequitur I dropped in from conversations I have been engaged in

BTW my typing seems to improve the more I drink :-)

[Si1]

why the funds required by the flooding of southern florida do not exceed those available in the global insurance industry

the global insurance industry simply won't insure that which it cannot afford, that's the point of insurance

[tallguy]

the global insurance industry simply won't insure that which it cannot afford, that's the point of insurance

Would that work in the same way as lenders not lending that which they do not have to lend?

[Si1]

Would that work in the same way as lenders not lending that which they do not have to lend?

except dodgily underwritten insurance (I think) is pretty easy to get out of by simply raising the premium to compensate or not renewing the contract, slate clean so to speak, unlike bad debt

[LiveinHope]

the global insurance industry simply won't insure that which it cannot afford, that's the point of insurance

That was then,

you are talking about a new, unexpected paradigm at the time

But this is OT. Apologies for starting it.

Edited November 9, 2010 by LiveinHope

[porca misèria]

I can repeat a point I have heard and agree with - the financing costs of the baby boomers retiring across western nations will push real interest rates over a period of decades, thus depressing the values of leveraged goods like property - this will be a clear secular bear market

don't know how this will effect the stockmarket - lower growth but not sure about long term bear market

We're bust now, and the boomers have yet to retire.

Everyone in the population bulge can expect to see pensions progressively more squeezed. Only if you're under about 40 does the demographic pressure start to come back off, leaving you decent prospects.