Peston: Uk's Debts "biggest In The World"

[koala_bear]

http://www.bbc.co.uk...siness-15820601

Should be quite good to have look at the updated full report when it comes out but for the means time Peston's take on the leaked juicy bits. The previous one is here:

http://www.mckinsey....full_report.pdf

At the beginning of 2010, I highlighted a fascinating analysis by the consultants McKinsey called Debt and Deleveraging, which showed quite how indebted the economies of the developed west had become.

McKinsey said that the UK had by 2008 become the most indebted of all the big rich economies, more indebted even than debt-engulfed Japan.

It has now become widely recognised that perhaps the greatest economic policy failure in the UK, US and eurozone during the 16 boom years before the crash of 2008 was the explosion of borrowing by banks, households, businesses and governments - or, to use the jargon, the unprecedented and massive leveraging up of entire economies.

These giant debts triggered the crash of 2008 because creditors refused to roll over short-term loans to banks, and caused the simultaneous recession because banks stopped lending, and have brought about our current economic malaise because our ability to spend and invest is hobbled by the imperative of repaying what we owe.

That is why getting the debt down to prudent levels is the most important economic challenge of our time.

As it happens, how we became so indebted and what to do about it, is what I am examining in a two-part documentary, called "The Party's Over", that will be broadcast on BBC2 at 7pm on December 4 and December 11.

But how have we done since 2008? Are we getting the debt down?

Well, Mckinsey is updating its 2010 report and has shared its interim findings with me.

These findings are not comforting.

According to the consulting firm, by the end of March this year, the aggregate indebtedness of the UK - that's the sum of household debts, company debts, government debts and bank debts - had risen to 492% of GDP, or almost five times the value of everything we produce in a single year.

That compares with 481% at the end of 2008.

So the UK's total indebtedness has increased, and is still the biggest relative to GDP of any of the big economies. That said, Japanese indebtedness is pretty much the same size - at the end of 2010, as opposed to the end of March 2011, Mckinsey says Japan's debts were also 492% of GDP.

US indebtedness is less, at 282% of GDP by the middle of this year, down from 296% in December 2008.

In the case of America, government debt is on a steeply rising trend, jumping from 61% of GDP to 80% over the past two and a half years.

But household debts have fallen from 98% of GDP to 87% of GDP, as homeowners have handed back the keys of their houses to lenders and reneged on the debts (which is possible in much of the US, but almost impossible in the UK).

So what's going on? Why are UK debts still going up?

Well partly it's to do with a phenomenon I've discussed here many times, that debt has been shuffled from the private sector to the public sector.

When banks stopped lending, and private-sector spending and investing collapsed, governments continued to spend, even though tax revenues were falling - so public-sector borrowing exploded.

To be clear, if governments had not continued to spend, our recession might well have become something much worse, a 1930s style depression.

But it is fair to say that a consequence of banks, households and businesses trying to repay their debts, has been a big increase in government borrowing.

Here are the numbers. From the end of 2008 to the spring of this year - so during the course of a bit more than two years - the debt of British companies fell from 122% of GDP to 109% and the debt of households fell rather less, from 102% of GDP to 97% of GDP.

Most would say those are positive trends, although the pace of debt repayment by household is pretty sluggish and our personal debts (at close to 100% of GDP) remain substantial (and a worrying burden) by historical standards.

By contrast, government debt has risen from 52% of GDP, which at the time was pretty low by international standards, to 76% of GDP, which is more or less standard for the rich west.

But as you'll know, UK government debt remains on a fairly sharply rising path (the government's deficit is some distance from being closed).

One other slightly surprising and - perhaps - disturbing trend is that the debt of financial institutions has risen, from 205% of GDP to 210% of GDP.

In McKinsey's definition, this financial institution debt excludes bank lending to households and non-financial businesses, to avoid double counting. Its substantial size is a reflection of the size of the UK's financial services industry, the City of London.

McKinsey believes, however, that this increase in financial institutions' debt disguises a positive trend: much of the debt is now of a longer-term nature, so poses less of threat to the stability of the economy (it can't be called in at a moment's notice, to the potential ruin of the borrower).

The point is that if excessive debt is the disease, what we've had since the end of 2008 is analgesic and sticking plaster, rather than cure.

Record low interest rates, the creation of £275bn of new money through the quantitative easing programme, has made it possible for us to live with our debts: cheap money has made the debts bearable.

But we haven't as yet found a way to get the debts down, so that we can be confident that our economy's foundations are solid and sound again.

What it means is that we must brace ourselves for many years of relatively low growth, perhaps 1% versus the 3% of the 16 boom years before the crash, because we no longer have the fuel of borrowing more and more every year.

Edited November 21, 2011 by koala_bear

[Reck B]

http://www.bbc.co.uk...siness-15820601

Should be quite good to have look at the updated full report when it comes out but for the means time Peston's take on the leaked juicy bits. The previous one is here:

http://www.mckinsey....full_report.pdf

But we haven't as yet found a way to get the debts down,

If actually paying them won't work then nothing will !

[Bubble&Squeak]

http://www.bbc.co.uk...siness-15820601

-- snip --

To be clear, if governments had not continued to spend, our recession might well have become something much worse, a 1930s style depression.

-- snip --

Record low interest rates, the creation of £275bn of new money through the quantitative easing programme, has made it possible for us to live with our debts: cheap money has made the debts bearable.

But we haven't as yet found a way to get the debts down, so that we can be confident that our economy's foundations are solid and sound again.

What it means is that we must brace ourselves for many years of relatively low growth, perhaps 1% versus the 3% of the 16 boom years before the crash, because we no longer have the fuel of borrowing more and more every year.

Having trouble seeing past your Keynesian blinkers Mr Peston?

The "boom" years were fueled with today's jam... now the cupboard is bare. All very simple really.

[koala_bear]

Having trouble seeing past your Keynesian blinkers Mr Peston?

The "boom" years were fueled with tomorrow's today's jam... now a stock take has discovered the cupboard is bare apart from the pile of IOUs. All very simple really.

Corrected

[Deckard]

Is this why the pound is getting spanked ?

Edited November 21, 2011 by Deckard

[clloyd]

Corrected

Spot on.

Why oh why can people not see that if you spend money in the past/present that you do not have you can not spend it again in the future, by borrowing so much we lived beyond our means in the past so now have to under consume in the present and the future. We are still living beyond our means and if we are not careful when the under consumption gets forced upon on us we will die of starvation.

[clloyd]

...

Edited November 21, 2011 by clloyd

[Milton]

Record low interest rates, the creation of £275bn of new money through the quantitative easing programme, has made it possible for us to live with our debts: cheap money has made the debts bearable.

But its not my Debt.

Typically Biased twisted viewpoint:

A debt Transfer has taken place.

Those priced out of housing, [already forced to waste tens upon tens of thousands in rent] are now being forced to pay to keep the banks assets, [houses] massively overinflated, [against the long term historic measure of affordability, 3-3.5x individual salary]

The BBC really are lying vested interest w@nkers.

Edited November 21, 2011 by Milton

[stormymonday_2011]

And about to get bigger if the governments latest wheeze for propping up the housing market has anything to do with it.

It should be noted that at least half of the potential debt exposure relates to the financial sector which has become a huge net cost to the UK by exposing it not only to the UK domestic property bubble but similar events elsewhere in the world such as Ireland and Spain.

Also worth noticing the massive level of personal debt most of which is tied up in the UK property market. What is really sad is that so much debt was taken on bidding up the price of existing property and so little in building new homes. As a consequence the UK has alot of debt and precious little in the way of new homes to show for it. Looks like the government still has not learned the lesson on the last point and remain keen to throw away taxpayers money trying to reinflate the bubble.

Edited November 21, 2011 by stormymonday_2011

[tricksters]

Having trouble seeing past your Keynesian blinkers Mr Peston?

The "boom" years were fueled with today's jam... now the cupboard is bare. All very simple really.

Quite. The stupidity of these "experts" takes your breath away. They aren't really expert at anything other than giving it blah blah blah, using all the financial jiggery pokery terminology, and talking in phoney, "expert" style, a La Peston. What normal person talks like that.? It's all a fu c k ing act. Either that or they're not allowed to say it like it actually is. You learn far more on here than you ever could from these learned sages at the BBC. For decades, we've been a "wealthy" country because we were able to borrow to our heart's content (population and government). A couple of years ago when one G Brown was challenged about the prospects for the economy, he said everything was fine because our ability to borrow was so secure. The stupidity of a financial system where endless borrowing is seen as the very foundation for a successful society won't stop, though, will it. We're awash with debt junkies in high places. And in not so high places.

[singlemalt]

Spot on.

Why oh why can people not see that if you spend money in the past/present that you do not have you can not spend it again in the future, by borrowing so much we lived beyond our means in the past so now have to under consume in the present and the future. We are still living beyond our means and if we are not careful when the under consumption gets forced upon on us we will die of starvation.

Hmmm? Since the speed of light Neutrino tests at CERN haven't scientists theorised that time travel is now possible. Maybe this is what they're working on. A viable way of speding money in the past, present and future

[symo]

BBC......rubbish I now only listen to business cat on TVN

[@contradevian]

The BBC need to fire this bad actor as soon as possible. He is in danger of seeing the Matrix for what it is.

[Bloo Loo]

yeah, but what about the assets?....silly me...they are valued based on the debt we supplied.

Ponzi will end soon.

[Redcellar]

QE save us from a depression. Hoorah. So this downturn is just another blip. What about the next and the next and the next. QE after QE after QE. I sometimes get the feeling that these experts try to make the situation complex when it is actually dead simple. We borrowed too much, we have nothing to show for it, QE is a short term junkies fix and something they will keep repeating until we're dead from it.

[interestrateripoff]

QE save us from a depression. Hoorah. So this downturn is just another blip. What about the next and the next and the next. QE after QE after QE. I sometimes get the feeling that these experts try to make the situation complex when it is actually dead simple. We borrowed too much, we have nothing to show for it, QE is a short term junkies fix and something they will keep repeating until we're dead from it.

The game is not to be in power when the shtf. Usually it's only small turds heading towards the fan, this time is the mother of all turds so far it keeps just touching the fan but they just about managed to blow it back again. This is the game now, just keep that giant turd away from the fans.

Edited November 21, 2011 by interestrateripoff

[Tabletop]

What is the net position?

Presume in addition to having these massive debts we are also owed large sums? In the article he hints that the City of London contributes substantially towards the debts but makes no attempt to explain the other side of the balance sheet. Maybe I am missing something, but to my mind without the whole article smacks of sensationalism.

[Georgia O'Keeffe]

What is the net position?

Presume in addition to having these massive debts we are also owed large sums? In the article he hints that the City of London contributes substantially towards the debts but makes no attempt to explain the other side of the balance sheet. Maybe I am missing something, but to my mind without the whole article smacks of sensationalism.

+1 Theres at least 2 curly wurlys and a Sherbert Dip to back those liabilities*

*err i mean im confident (i invoke limited liability at this point in discussions) that the asset side of the balance sheet will generate a more than adequate return over the cycle for investors

Edited November 21, 2011 by Tamara De Lempicka

[interestrateripoff]

What is the net position?

Presume in addition to having these massive debts we are also owed large sums? In the article he hints that the City of London contributes substantially towards the debts but makes no attempt to explain the other side of the balance sheet. Maybe I am missing something, but to my mind without the whole article smacks of sensationalism.

But are you confident that we will actually get back what you are owed?

[Stay Beautiful]

The BBC really are lying vested interest w@nkers.

quite.

[the_big_beast]

Interesting report.

Government debt is the least of our worries, and welcome to the period of inflation and slow growth.

[Executive Sadman]

If actually paying them won't work then nothing will !

Well, German economic growth has exceeded german debt growth in the last few years (the 'real' debt load has decreased) by export led growth

The problem is our government believes, in fact the whole UK political establishment believes the best way to achieve economic growth is through population growth. That in itself can only achieve consumption/debt growth however.In fact it makes real growth more difficult, as in terms of food, fuels, minerals, we are already far overpopulated, so more heads of population means more food (and particularly with north sea oil running down) fuel imports.

What we need is a program to encourage mass emigration.

But yes, Peston argument that govt spending has stopped a deeper recession is nonsensical. It has delayed the recession, which as a result of interest will be even deeper when we are in Greece's situation (about 4-5 years, when the principal is due)

[Executive Sadman]

Interesting report.

Government debt is the least of our worries, and welcome to the period of inflation and slow growth.

Private debt IS government debt.

Gordon set the ball rolling on that one. If a bank fails, we bail it out.

There is no such thing as a private debt any more. Its all been socialized through guarantee schemes.

[t1234]

One of these days it'll be like the emperors new clothes, the markets will suddenly realise the games up for the pound. Its just backed by more and more increasing debt.

There'll be no one willing to bail us out. Then I fear we'll see a real devaluation.

[jaycee331]

I'd love to get interested, but given that McKinsey, as recently as March this year (as I'm sure many people around here are aware) were caught in an insider trading scandal that it's senior partners were implicated in, I just want to spit when I hear that name. And I think we’re all bored and wise to the “rogue individual” stories by now, lol.

The fact that anyone would give them business, or give any credibility to their opinions just makes me die a little.

I would hope that we would not give such allegedly (well not really allegedly, it's a matter of public record) any recognition of existence and left to rot.