The EU

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Monday, December 19, 2011

Europe Versus UK—Debt to GDP Ratio

I ignored this post at the Zero Hedge blog the first time I saw a reference to it.  Then The Other Cliff sent me the link and I followed it.
While certainly humorous, entertaining and very, very childish, the recent war of words between France and Britain [see here for example] has the potential to become the worst thing to ever happen to Europe.  Actually, make that the world and modern civilization.  Why?  Because while we sympathize with England, and are stunned by the immature petulant response from France and its head banker Christian Noyer to the threat of an imminent S&P downgrade of its overblown AAA rating, the truth is that France is actually 100% correct in telling the world to shift its attention from France and to Britain.
Why?  As the chart in the linked blog post shows, the UK debt to GDP ratio is 950%.  That is bigger than Japan, at just over 600%, or Europe as a whole, at about 450%.  Bigger than the US, where it is about 300%.

The article goes on
then this island, which far more so than the US is the true center of the global banking ponzi scheme, will suddenly find itself at the mercy of the market.  At that point the only question is whether the vigilantes will dare to take down the UK, as said take down will result in an implosion in the very fabric of modern finance, much more so than what even a full collapse of France could ever achieve.
The blogger gives a mention to AIG-FP's Joe Cassano.

Doesn't someone have to cover all that debt?  Is this a "bite the bullet" question hanging out there and blocking investment, and thus economic recovery and growth?

Regards  —  Cliff


Anonymous said...

This may well be the final chapter in the mythology that is banking and national debt.

First and perhaps foremost, "WHO" will cover the debt. GB has lived long on the socialist/Keynesian theory of public finance, so much so that the state has mortgaged the very soul of its people. Is the world supposed to bail them out in order to preserve their fantasy? Why is it that my children and my children's children be made to feel that somehow.....they are responsible for acts of insanity committed by folks that are a)long in the ground and b) they will never know?

Simple, elementary bookkeeping provides all of the answers to the great economic questions. It is a simple matter of a balance sheet. You bring this much revenue covers this much spending out. When you spend more than you can "make," you are in the red...and no matter what sleight of hand the academics and intelligent elite claim to work, the red remains until it is balanced by green and the bottom line turns black once more.

The British in particular and most of Europe in general are a kept people, serfs of the state, ultimately dependent on Nanny to get them through to tomorrow. It is THAT characteristic that has led them into the abyss of debt in which they currently find themselves hopelessly lost.

America began as free men, with a free market mentality and economy. However, those who claimed our citizenship but longed for the security of European "culture" steadily have eroded that ethic until we look pathetically like that which our forefathers bravely and diligently worked to eschew.

A question bears answering!! What happens if GB...or Europe can't/won't pay the bills??? Will the sun cease to rise? Will gravity fail? Will the genus species Homo sapien vanish from the earth?

The answer is an emphatic "NO" to any of the questions. Some ostensibly smart people will lose everything, and those who have nothing to begin with except an illusion will be forced by reality to "fend" for themselves once more....or for the first time.

America...and our elders....have weathered this sort of storm in the 30's. A storm the same group of people who are threatening us with more of the same...the British...aided and abetted by a socialist Europe. If we plunge into a deep, deep depression....where everyone loses could well be our salvation.

the other cliff said...

To answer your question of who will pay, you first have to understand that the UK allows virtually unlimited rehypothication, which is essentially a form of leverage. The following link is from the cited article and explains it much better than can I:

TRehypothication also explains why the big bar for the UK debt (950% of GDP) is mostly (about 600%) composed of finance debt. The people who will take a bath are those who have bought into the rehypotication of UK debt. I say UK debt, but the reality is that since the UK has such lax laws in that area, the debt likely represents money from the rest of the world too.

Time will tell.