Jump to content
House Price Crash Forum
Tired of Waiting

Financial Times: " The Great Uk Debt Reveal "

Recommended Posts

It appears that the "international investors community" ( = Wall Street) is only now (!) starting to see through the UK government's "creative" accounting.

This may turn out to be serious. Potentially, even really serious.

Source, FT Alphaville: http://ftalphaville.ft.com/blog/2011/06/03/584326/the-great-uk-debt-reveal/

The great UK debt reveal

Posted by Tracy Alloway on Jun 03 09:51.

It must be bash-the-UK week.

Following Tim Morgan’s warning and a forecast of a 10 per cent house price fall, Morgan Stanley’s Cath Sleeman and Melanie Baker have chimed in, with a note pouring doubt on the UK’s debt dynamics.

Their central contention — the UK’s recently-acquired reputation as a safe haven is totally bonkers. The Office for Budget Responsibility‘s GDP growth forecasts are way too optimistic and, most intriguingly, the amount of UK government debt is arguably larger than it appears. Very peripheral eurozone, right?

Here’s their thinking and a clue about their timing:

  • There exists a broad range of government liabilities that are debt, yet are not captured in national accounts. This is true for economies other than the UK and has been discussed in detail by Arnaud Marès (see Sovereign Subjects: Ask Not Whether Governments Will Default, but How, August 25, 2010). However, the UK may gain more attention than elsewhere when the OBR publishes its Fiscal Sustainability Report (July 13).
  • Debt/GDP Inadequate: UK May Look Worse on a Broader Measure of Debt We look at some of Arnaud’s points on this issue and make some UK-specific observations. The standard gross general government debt to GDP is the most widely used debt metric and the public sector net debt (PSND) measure is the one most often referred to in a UK context. However, we believe that both are inadequate indicators of government solvency. There are three reasons for this that are of particular relevance to the UK:
  • * (1) Gross versus net debt: First, debt/GDP is a measure of gross indebtedness. PSND only nets off ‘liquid’ financial assets. These measures therefore overstate the size of the government’s net financial liabilities, especially when – as was the case through the financial crisis – some of that debt is being raised for the purpose of acquiring assets or on-lending (in this case, loans to certain public sector banks and purchases of bank shares). The difference between gross debt and net debt can be sizeable. General government financial assets are in excess of 30% of GDP in the UK currently, for instance. The news gets somewhat worse from here for the UK though…* (2) Debt/GDP looks at the past: The main problem is in the future, coping with the large structural deficits opened up by the crisis and compounded by the fiscal consequences of ageing. What raises questions about debt sustainability is not so much current debt levels as the additional debt that will accumulate in coming years if policies don’t change. The OBR, for example, already ran this exercise assuming that spending and revenues evolve as in the OBR’s November 2010 projections until 2015-16, then incorporating some of the effects of aging onto the projections. Such projections do give cause for concern. Expenditure on health, for example, rises from 8% of GDP in 2009-10 to 10.6% in 2049-50 in this exercise. If these spending pressures are not offset, then this analysis suggests that UK public finances would not stay on a sustainable path. However, things are not quite as bad as they might appear. UK policies are changing …* (3) Missing liabilities: There exists a broad range of liabilities that are debt, yet not captured in national accounts. To take one example, in March 2008 the UK Government Actuary Department valued the government’s unfunded civil service pension liabilities – the contractual claims on government accumulated to date by civil servants – at £770 billion. That is 53% of GDP. There are different ways this liability can be calculated (and it will be particularly sensitive to the discount rate assumed). Further, PFI liabilities and the contingent liabilities acquired over the financial crisis could also be added to the mix for example. We list some of the existing estimates on the scale of some of these items in Exhibit 6.

Now the OBR is scheduled to publish its fiscal sustainability report next month, which, unsurprisingly given the title, will focus on the long-term sustainability of the UK’s public finances. In a paper published to coincide the March 2011 Budget, the OBR gave some hints about its upcoming report.

Or as Morgan Stanley summarised:

  • * The OBR has stated that the reason for publishing this assessment separately from its other main forecast releases (at spring Budget time and in the autumn) is to “to try to ensure that long-term sustainability analysis gets the attention that it deserves”. [our italics]
  • * The focus of the report is likely to be wide and further explore and expose ‘hidden liabilities’. As can be seen in Exhibit 7 from the OBR itself, the current headline debt measure, PSND (public sector net debt), covers “a relatively narrow and entirely backward-looking subset of the government activities” that could be considered.

Something to look forward to, then!

Their "Exhibit 6" :

exhibit6.jpg

Edited by Tired of Waiting

Share this post


Link to post
Share on other sites

Very interesting - thanks.

You're welcome.

So, let's not forget to include July 13 in our calendars.

Now, back to the article:

"Their central contention — the UK’s recently-acquired reputation as a safe haven is totally bonkers."

:o

"Safe haven" ? !

"Safe haven" ? ! ? ! ? !

:blink:

Are they bonkers?!?!?!?!

Jeeez!

Edited by Tired of Waiting

Share this post


Link to post
Share on other sites

Someone once said the UK was well placed to weather the storm, its hard working families would prevail.

Share this post


Link to post
Share on other sites

PFI.......... B)

The "unfunded civil service pension liabilities" are much bigger than PFI :

* (3) Missing liabilities: There exists a broad range of liabilities that are debt, yet not captured in national accounts. To take one example, in March 2008 the UK Government Actuary Department valued the government’s unfunded civil service pension liabilities – the contractual claims on government accumulated to date by civil servants – at £770 billion. That is 53% of GDP. There are different ways this liability can be calculated (and it will be particularly sensitive to the discount rate assumed). Further, PFI liabilities and the contingent liabilities acquired over the financial crisis could also be added to the mix for example. We list some of the existing estimates on the scale of some of these items in Exhibit 6.

Exhibit 6:

exhibit6.jpg

Share this post


Link to post
Share on other sites

Reportedly total debt, including off-balance sheet debt and unfunded liabilities are nearly 8 Trillion pounds. More than 8 times the level reported as the national debt which they say is 924Bn!

This country, like the US and Europe is sitting on a massive debt bomb, the likes of which have never been seen on this scale.

When it goes off it's party time! B)

Share this post


Link to post
Share on other sites

Reportedly total debt, including off-balance sheet debt and unfunded liabilities are nearly 8 Trillion pounds. More than 8 times the level reported as the national debt which they say is 924Bn!

This country, like the US and Europe is sitting on a massive debt bomb, the likes of which have never been seen on this scale.

When it goes off it's party time! B)

8 trillion sounds like a vast exaggeration. Gov debt is probably around £1.6 trillion, similar to the UK GDP. And that is already a lot. But the worst here is the total national debt = gov. + households + companies. The highest in the world - if we have already overtaken Japan for the 1st prize.

Share this post


Link to post
Share on other sites

8 trillion sounds like a vast exaggeration. Gov debt is probably around £1.6 trillion, similar to the UK GDP. And that is already a lot. But the worst here is the total national debt = gov. + households + companies. The highest in the world - if we have already overtaken Japan for the 1st prize.

You might find corporate assets actually match the government debt in the UK (don't know). I've seen charts for the US where the public sector debt is matched by corporate cash (or assets, can't remember which). You can chart the improvement in corporate cash, in line with deterioration with of public sector balances. The money has to go somewhere. We have discussed it before on here.

I am in no means suggesting that UK debt is repaid by raiding the corporates cash piles, but clearly there is some potential for boosting the economy via private investment (should the opportunities present themselves) assuming they don't invest the cash all abroad.

Edited by Sir John Steed

Share this post


Link to post
Share on other sites

You might find corporate assets actually match the government debt in the UK (don't know). I've seen charts for the US where the public sector debt is matched by corporate cash (or assets, can't remember which). You can chart the improvement in corporate cash, in line with deterioration with of public sector balances. The money has to go somewhere. We have discussed it before on here.

I am in no means suggesting that UK debt is repaid by raiding the corporates cash piles, but clearly there is some potential for boosting the economy via private investment (should the opportunities present themselves) assuming they don't invest the cash all abroad.

Yes, we had some data about debt in these 2 posts:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=153952&view=findpost&p=2771813

http://www.housepricecrash.co.uk/forum/index.php?showtopic=153952&view=findpost&p=2771835

But I don't know who are the creditors though. Not even if they are domestic or foreign.

But capital has no nationality. If we create a good business environment then not only UK capital will invest here but we'll attract also international capital. On the other hand, if we keep messing up...

Edited by Tired of Waiting

Share this post


Link to post
Share on other sites

When it goes off it's party time! B)

If (or when - I'm not disputing that there's a problem here) it goes off, what do you think "party time" will look like? Do you think that your standard of living and prospects will be improved overall? There might be more widespread consequences than the price of an average house returning to £85k or whatever figure the muppet-consensus here suggests...

Share this post


Link to post
Share on other sites

If (or when - I'm not disputing that there's a problem here) it goes off, what do you think "party time" will look like? Do you think that your standard of living and prospects will be improved overall? There might be more widespread consequences than the price of an average house returning to £85k or whatever figure the muppet-consensus here suggests...

laugh.giflaugh.gif

Looks like we may be entering the Fear stage.

Share this post


Link to post
Share on other sites

If (or when - I'm not disputing that there's a problem here) it goes off, what do you think "party time" will look like? Do you think that your standard of living and prospects will be improved overall? There might be more widespread consequences than the price of an average house returning to £85k or whatever figure the muppet-consensus here suggests...

the alternative is what exactly...carry on till we all die of starvation?

Share this post


Link to post
Share on other sites

Reportedly total debt, including off-balance sheet debt and unfunded liabilities are nearly 8 Trillion pounds. More than 8 times the level reported as the national debt which they say is 924Bn!

This country, like the US and Europe is sitting on a massive debt bomb, the likes of which have never been seen on this scale.

When it goes off it's party time! B)

Fortunately, this country has civic spirited citizens who have been amssing substantial gold reserves which we can confiscate and use to pay our debts.

:lol::lol:

Share this post


Link to post
Share on other sites

It never ceases to amaze me when I hear people talk about 'their' gold stash and how they will be just fine when TSHTF. Naive is one word I can think of.

Share this post


Link to post
Share on other sites

If (or when - I'm not disputing that there's a problem here) it goes off, what do you think "party time" will look like? Do you think that your standard of living and prospects will be improved overall? There might be more widespread consequences than the price of an average house returning to £85k or whatever figure the muppet-consensus here suggests...

I would suggest 'party time' is actually a good phrase for those of us who didn't encumber ourselves with huge debt for a lifestyle we couldn't afford. Come party time those who hurt the most will be those who whored their 'potential worth' to get a lavish short term gain.

Not a problem, just means GB will reset and people will have to think about others and not be so self centric and chasing the Jones' in their lives.

May well help the planet too. Get rid of excess, flying excessively and wasting natural resources and food stuffs. Bring us down to earth.

Here's hoping.

Share this post


Link to post
Share on other sites

Devalued currency, low interest rates and a public so heavily in debt they have nothing to spend.

I cannot see why foreigners wouldn't invest in the UK, what could go wrong?

Exactly, you have just listed the perfect combination for production, not consumption = more exports and less imports.

Exactly what we need.

Share this post


Link to post
Share on other sites

the alternative is what exactly...carry on till we all die of starvation?

I'm not asking about the existence of alternatives. I am asking Congreve to explain why he thinks he personally will be better off should some catastrophic financial collapse (of the kind that has been averted/deferred thus far) occur. I very much doubt that he will be better off in absolute terms, although being better off in relative terms may of course be a goal in itself for some saddos.

The idea of some "great financial levelling" occurring from which everyone gets to start again on even terms seems as naive as its obvious spiritual/religious redemption parallel. Similarly seductive if you've got f*ck all though I suppose...

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.