Lifting off the Veil:The true extent of Britain's debt.

Another boring post, having said that, in my opinion this is the most significant human event taking place in the 21st Century, if you exclude the genocide consistently happening in the various parts of the world. Unless of course, I am delusional and reading all the wrong journals, blogs and broadsheets.

So, in the world I live in, we are in the midst of witnessing a 'First World' country collapsing into an extraodinary situation, which I would not necessarily call a 'recession'. If the UK was a company, I dont think it would be allowed to
trade, period, in addition the directors would be black-listed by Companies House and possible litigation by their shareholders.

Below is an excerpt from this months issue of 'The Spectator'.

THE TRUE EXTENT OF BRITIAN'S DEBT

Fraser Nelson
Wednesday, 10th December 2008

How much is Britain’s true national debt? Gordon Brown says 37% of GDP, the ONS says 43% of GDP – but this is just government debt. The reason Britain is in so much trouble is that our corporate and household debts are huge. It is the combination that makes us such a credit liability – but no one has ever put together a combination.

Until now.

Michael Saunders from CitiGroup has calculated ‘external debt’ – ie, what Britain owes the rest of the world. It is not 40% but 400% of GDP, the highest in the G7 by some margin. The next down, France, is 176%. America, flagellating itself for blowing such a debt bubble, is just 100%. Japan is about half America. The below graph shows ‘external debt’ – both in mid-2008, and five years ago.


G7 Countries - external debt/GDP ratios, 2003Q2 - 2008 Q2



Narrow it down to short-term debt, ie IOUs that have to be paid back within a year, and the picture grows even bleaker. It adds up to 300% of GDP – six times that of France whose loans are long-term. Saunders says, with some understatement, that this makes “the UK economy and financial system highly vulnerable when, as now, global banking and capital flows dries up.” Here is the picture, narrowed down to short- term debt (ie, due by next Christmas).


G7 Countries - ratios of short-term external debt/GDP, 2003Q2 - 2008 Q2



Read more