The UK isn’t Greece, it’s Iceland


 

Sometimes, a picture really is worth a thousand words:

Whether you look at international comparisons such as this one, or historical comparisons, it is clear that our government debt, though large, is not unsustainably so. Greece’s government debt is 145 per cent of its GDP; ours is 80 per cent (Eurostat).

Our financial sector, however, holds over 600 per cent of Britain’s GDP in debt, and as we reported earlier today, the Vickers report is doing nothing to stop that proportion growing. Icelandic financial debt hit 1000 per cent of its GDP before reality caught up with them.

We do have a debt crisis, but it’s not government debt, it’s banking.

(Chart from Business Insider via The Automatic Earth)

See also:

Implementing Vickers won’t stop the next crisisJosh Ryan Collins, December 20th 2011

Cameron’s excuses don’t add upCormac Hollingsworth, December 13th 2011

Trouble ahead for Cameron: Majority of Euro rebels were from class of 2010Shamik Das, October 25th 2011

A damp squib or quiet radicalism from the Vickers Commission?Ben Fox, September 13th 2011

The Vickers report lacked ambition and lacks biteJoe Cox, September 12th 2011

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  • Anonymous

    Really. Why is it 80%?

    Ah yes. The government isn’t going to pay any of those pesky civil service pensions. That’s spending, so its optional. No contract is there.

    Omitted from the Books. Current cost, 1.3 tn on top of the 1.05 tn ‘official debt’.

    Then there is that little thing called PFI. Again, thanks to Bernie Maddoff’s accountant, that’s off the books too.

    State pension? All those low paid civil servants, say 5 million, only manage to run up 1.3 tn of debts. There are lots of people with state pension entitlements. Ok, its small at 5K pa, but what shall we say, a tad under double the cost of the civil service pension? 2.4 tn (an accurate figure by the way). All thanks to those nice folks who used to work at Enron, we don’t have those on the books.

    State second pension?

    Guarantees for ex state enterprise pensions schemes such as BT. Current deficits 100 bn

    Nuclear decommissioning. Money taken up front – its a debt. 100 bn

    Yep, all the debts have been hidden off the books bar Gilts.

    Now for that AAA rating. That is just the rating for the holders of Gilts getting their money back. It says nothing about the government’s ability to pay its other debts. Those debts are to the likes of you and me, and the ratings agencies view is that we get cut first, because governments will want to carry on spending, and they will need to borrow. Citizens are expendable.

    Now for your figures.

    1. Banks hold assets against liabilities, and they have to have an excess of assets. Otherwise they are bust.

    2. Most individuals again have more assets than liabilities – property against mortgages. Some have negative equity, but the vast majority are in positive territory.

    3. Corporates – again have assets greater than liabilities, or they are operating fraudulently.

    That leaves government. Governments have vast debts, mostly off the books. 7 tn present value (ie rising with inflation), against an “income” of 0.55 tn. Of that most of the money is earmarked not for paying debt, but for providing services. The government doesn’t have assets it can sell to raise cash. e.g Sell off a hospital. Ah but people need hospitals. So they rent it back. It’s either debt payments, or rent. Same effect on cashflow.

    They could try and say, look if we book people as slaves/serfs, we can give them a book value, their future tax income. However, people have this little pesky problem that they don’t like being treated as cash cows. They want something for their taxes – services.

    So the UK government is bust. Pure and simple.

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  • Selohesra

    We all know that the City represents a vitally important part of the economy and of course it makes sense to reduce its proportion of the economy but surely you don’t need to be a genius to see that evening things up is best done by growing the other areas rather than destroying the biggest contributor. Old man Cable and many articles on LFF seem to want war with the City & to destroy it.

    Reminds me of a Sesame St scene where they wanted to know how many balloons they had – some muppet (geddit) procedeeded to burst them one by one counting as he went

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  • Trevor Cheeeseman

    Good article.

    Lord blagger – maybe you should read why 2012 coudl be an interesting year for european banks, according to Reagan’s ex-adviser…
    http://www.financialsense.com/contributors/lee-adler/2011/12/14/david-stockman-on-the-coming-euro-train-wreck

  • Anonymous

    we only have a debt crisis because all our money is created as debt…consequently if you pay all the debts back we will have no money and the economy will collapse…we have to replace debt issued money with publically created money which will have no interest attached to it….then we can pay back debts without causing a crisis and free ourselves from the slavery of debt

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  • Blarg1987

    I think cable does want the other areas to grow, but lets be honest any form of economic change will cause some pain.

    Now the city will not like it if other areas are favoured over themselves even though it would be more beneficial for the overall economy so yes it is right to curtail the power of the city, if we do not do it now it will be harder to do during any economic boom as the city would just say the boom is engineered by us, which would not be necessarily true.

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