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mises
Joined: 05 Nov 2007 Location: retired
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Posted: Tue Jan 20, 2009 10:52 am Post subject: Britain on edge of bankruptcy |
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Gordon Brown brings Britain to the edge of bankruptcy
Iain Martin says the Prime Minister hasn't 'saved the world' and now faces disgrace in the history books
By Iain Martin
Last Updated: 8:36AM GMT 20 Jan 2009
Comments 181 | Comment on this article
They don't know what they're doing, do they? With every step taken by the Government as it tries frantically to prop up the British banking system, this central truth becomes ever more obvious.
Yesterday marked a new low for all involved, even by the standards of this crisis. Britons woke to news of the enormity of the fresh horrors in store. Despite all the sophistry and outdated boom-era terminology from experts, I think a far greater number of people than is imagined grasp at root what is happening here.
The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.
The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.
This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their "financial innovation".
Does the Prime Minister realise the likely implications when the country joins the dots? He has never been wild on shouldering blame, so I doubt it. But Brown is a historian. He should know that when a nation has put all its chips on red and the ball lands on black, the person who made the call is responsible. Neville Chamberlain discovered this in May 1940 with the German invasion of France.
We're some way from a similar event. But do not underestimate the gravity of the emergency and potential for disgrace.
The Government's bail-out of the banks in October with �37 billion of taxpayers' money was supposed to have "saved the world", according to the PM, but now it is clear that it has not even saved the banks. Our money kept the show on the road for only three months.
As the Liberal Democrats' Treasury spokesman Vince Cable asks: where has the �37 billion gone? The answer, as Cable knows, is that it has disappeared down the plug hole.
It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy. Unfortunately, the Treasury is pledged to honour those
liabilities because it has guaranteed not to let a British bank go down. RBS has liabilities of �1.8 trillion, three times annual UK government spending, against assets of �1.9 trillion. But after the events of the past year, I wager most taxpayers will believe the true picture is worse.
Meanwhile, the assets are falling in value. This matters, because post-nationalisation these liabilities are now yours and
mine.
And they come piled on top of the rocketing national debt, charitably put at �630 billion, or 43 per cent of GDP. The true figure is much higher because the Government has used off-balance sheet accounting to hide commitments such as PFI projects.
Add to that record consumer indebtedness and Britain becomes extremely vulnerable. The markets have worked this out ahead of the politicians, as usual, and are wondering what to do next. If they decide our nation is a basket case, they will make it so.
The PM and the Chancellor , both looking a year older every day, tell us that for their next trick they will buy more bank shares, create a giant insurance scheme for bad debt, pledge to honour liabilities without limit, cross their fingers and hope it all works. The phrase "bottomless pit" springs to mind for a reason: that is what they have designed.
In this gloom, the Prime Minister has but one slender hope: that somehow, by force of personality, the new President Obama engineers a rapid American recovery restoring global confidence, energising the markets and making us all forget this bad dream.
Obama is talented but he is not a magician. Instead, Gordon Brown's nightmare, in which we are all trapped, is going to get much worse.
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http://www.telegraph.co.uk/comment/columnists/iainmartin/4295219/Gordon-Brown-brings-Britain-to-the-edge-of-bankruptcy.html
Brown's managing of the UK is similar to Arnie's in California. Both are totally broke. |
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rusty1983
Joined: 30 Jan 2007
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Posted: Tue Jan 20, 2009 12:26 pm Post subject: |
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This article is typical of the British media, and represents the attitudes of a large portion of British people. Doom and gloom, selfishness, everyone blaming everyone else. London can sink for all I care. |
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mises
Joined: 05 Nov 2007 Location: retired
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Bigfeet

Joined: 29 May 2008 Location: Grrrrr.....
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Posted: Tue Jan 20, 2009 2:30 pm Post subject: |
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Sounds like the American economy. Britain has just been following it. Now both countries are reaping the same rewards. |
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mises
Joined: 05 Nov 2007 Location: retired
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Posted: Tue Jan 20, 2009 2:34 pm Post subject: |
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Except the American economy is much larger, and financial services a smaller portion of GDP. While the American financial sector is bankrupt a sovereign default isn't in the cards there. Maybe in the future, with the unfunded liabilities. But for now, Ireland, Switzerland, UK and Spain are likely to face default.
The second article I posted (from the FT) makes for very sober reading. |
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Beeyee

Joined: 29 May 2007
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Posted: Tue Jan 20, 2009 3:59 pm Post subject: |
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Whenever I feel bad about Korea I just have to think about the UK and what a shithole it has become. Thank you Labour. |
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blade
Joined: 30 Jun 2007
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Posted: Tue Jan 20, 2009 8:40 pm Post subject: |
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European journalists deliver the last rites to Celtic Tiger
EUROPEAN DIARY : European media outlets have been scathing in their criticism of a �Wild West� financial culture, writes Jamie Smyth
THE CRISIS gripping the Irish economy is clearly the big news at home this week. But it is also hard to avoid the topic in Brussels, where journalists and diplomats are busy reading the last rites to the Celtic Tiger and rethinking their past praise for the Irish economic miracle.
In the European Commission press room, colleagues from other EU states tend to broach the subject in one of two ways. Over a cup of coffee some ask concerned questions about what went wrong, who is to blame and what impact it will have on a second referendum on the Lisbon Treaty. Others invoke gallows humour, telling the in-joke: �What�s the difference between Iceland and Ireland? Answer: One letter and about six months.�
The BBC�s daily current affairs programme Europe Today repeated this � by now hackneyed � joke on air on Friday in a lengthy segment on the debacle surrounding the nationalisation of Anglo Irish Bank. It also broadcast a sequence of angry comments made by shareholders at the bank�s annual general meeting: �We are being watched all over the world and the world is seeing that this is a cowboy economy run by cowboys,� said one, who stands to lose almost his entire investment in the company.
The Financial Times , the most influential business newspaper in Europe, has written extensively on the economy�s decline. In an editorial entitled �The Blue Emerald�, it focused on how the job losses at Dell signalled the end of the boom. A few days later its Ireland correspondent wondered if �the one-time �Celtic Tiger� is destined for a protracted period as one of the continent�s also-rans� in a feature under the headline �Things Fall Apart�.
The damage to the country�s reputation as a safe and profitable place to invest is clearly suffering a pounding in the face of the current recession. An article published last week by Motley Fool � an internet site that provides advice to investors � raised the spectre of the country going bust. �Until last year, I would never have believed that the once-mighty Celtic Tiger economy could fail. However, since the collapse of the Icelandic economy and its banks, I�m going to admit the possibility that Ireland could default on its sovereign debt,� said a columnist, who acknowledged this was �unlikely�.
Ireland�s economic meltdown has also raised eyebrows in Germany, where Der Spiegel last week strongly criticised the lack of regulatory oversight of German finance firms based at the Irish Financial Services Centre (IFSC). One article noted how state bank Helaba used its Dublin subsidiary to sell commercial paper. �At the start of this decade the Irish finance ministry unashamedly advertised to banks annoyed at the strict controls exercised by the German Bundesbank that � with some financial instruments � �oversight by the Irish Central Bank is not absolutely essential�,� it said, reinforcing the commonly held German perception that Ireland is some sort of European �Wild West� of finance.
The normally restrained financial daily Handelsblatt summed up the worsening situation under the headline �Panic Broadens in Ireland�, while the Frankfurter Allgemeine Zeitung reflected last week on how �Europe�s periphery is now losing the confidence of investors� and how states such as Ireland were finding it more difficult to borrow money.
On Saturday, Le Monde picked up this theme and listed Ireland as one of �black sheep� within the euro zone that are destabilising the currency. Portugal, Greece and Spain also share this dubious distinction from Le Monde , suggesting to its readers that Ireland is now some sort of Mediterranean of the north when it comes to finances.
RTɒs mid-week gaffe over the need for IMF intervention in the Republic added fuel to the fire of an unfolding PR disaster when news wires picked up the story. Bloomberg noted how German stocks fell sharply, while Reuters reported that the euro dipped by a cent against the dollar before it stabilised following a strong denial.
This incident underlines how interconnected the economies of the 16 euro zone members (Slovakia joined the single currency in January) have become. Economic commentators and journalists are increasingly questioning whether the worsening economic problems in Ireland, Spain, Greece and Portugal could create real problems for the single currency.
As euro zone finance ministers gathered in Brussels last night for their monthly meeting, monetary affairs commissioner Joaqu�n Almunia did his best to allay these fears by stating unequivocally that IMF support would not be needed in Ireland. �Risk of default . . . always exists in the private and public sectors, but in the case of euro area members, I don�t think the risks are high or are significant,� Almunia told EU journalists.
With Government debt in Ireland still relatively low by EU standards, he is probably right. But after a decade of flattering news reports about the Celtic Tiger, it is not surprising that European colleagues are now questioning the basis of the Irish economic miracle.
http://www.irishtimes.com/newspaper/world/2009/0120/1232059661794.html?via=mr |
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mises
Joined: 05 Nov 2007 Location: retired
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Posted: Wed Jan 21, 2009 6:37 am Post subject: |
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http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2009/01/20/seriously_alarmed
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SERIOUSLY ALARMED
The slide in sterling has turned "disorderly".
We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel.
For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.
The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.
The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn. (on this, more later in a piece I'm writing today)
If the Government is forced to nationalise RBS and perhaps Barclays with their vast exposure in dollars, euros, and yen, it risks being submerged. It is one thing for a sovereign state to let its national debt jump in a crisis -- or a war -- perhaps even to 100pc of GDP. It is another to take on foreign debts on such a scale with no reserves. Yes, the banks have foreign assets as well to match the debts. But how much are these assets really worth?
This is the moment when the "rubber hits the road" -- to borrow from American argot -- the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.
We cannot even do what Iceland did to save its skin. Reykjavik refused to honour the foreign debts of its buccaneering banks. It let them default, parking the losses in Resolution Committees. Small islands can do that. Iceland has fish instead, and lots of metals.
Britain cannot follow suit. The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.
What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster.
England has not defaulted since the Middle Ages. There is a real risk it may do so now.
And no -- just so there is no misuderstanding -- it would not have been any better if Britain had joined the euro ten years ago. The bubble would have been just as bad, or worse, as Ireland and Spain can attest. We have our disaster. They have their disaster. When the dust has settled in five years we can make a proper judgement on the sterling-EMU issue. Not now.
The Baby Boomers have had their moment in power. The most spoilt generation in history has handled affairs with its characteristic hedonism. The results are coming in. |
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Neil
Joined: 02 Jan 2004 Location: Tokyo
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Posted: Wed Jan 21, 2009 7:05 am Post subject: |
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It's been on the cards for a while I reckon.....I've got friends back home who are super qualified, we are talking MBAs from top unis at home and abroad, experience in the city ect and from emails I'm finding out at best they are losing much needed bonuses and at worse getting made redundant. Still I remember the same thing in 1992, it was harsh then but things picked up.
The housing thing is fecking silly, two friends my age (29) both with MBAs and a few years working for top banks behind them are still living with their parents....what hope for the average joe?.......although to be fair I'm from the SE of England which is significantly more expensive than the rest of the country.
I think I might do the ESL cowboy thing for a couple more years until things pick up at home, short hours and good pay (relative to the cost of living) mean I can save and have time to retrain......I'm lucky to be well out of it. |
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RJjr

Joined: 17 Aug 2006 Location: Turning on a Lamp
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rusty1983
Joined: 30 Jan 2007
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Posted: Wed Jan 21, 2009 4:09 pm Post subject: |
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Not saying it isnt true but you hear it over and over and over and over again day after day in the UK. All.The.Time.
I guess we'll see how far down the pan we go but Britain has been up and down plenty over the years. I think it could be a good thing, in the long term. Maybe it'll change the fucking attitude of some of the people here, get em back to looking out for each other and appreciating what they have. I often think we are becoming a bunch of alienated, cyncial, selfish, miserable bastards. Maybe a big crash will get everyone to think about what they are doing, but unfortunately itll probably be the good people and the already poor people who get shafted the most.
The problem is we arent a world power anymore (and havent been for ages), and people need to get used to it and accept it.
The recent years of prosperity have been proven to be basically an illusion, and you wonder what it is that will now maintain our standing as one of the worlds financial powers. We need to find ways to make money that arent moving around debt.
Brown seems to be trying to revive everything as it was and keep it going but maybe more fundamental changes need to be made (?).
Like in America, the standard of living has been too high, people too spoilt and now it will even itself out. Maybe it's a good thing?
However, it seems there are plenty of countries in the poo, everyone scrambling for a way out. Reading this forum shows plenty of signs that Korea isnt faring much better.
Also, the housing and job thing as mentioned above is not uncommon in Europe nor America. In Italy etc. it is common for people to go to uni, then live with their parents afterwards because of house prices and the difficulities of finding a job.
I havent seen nor heard of any of the economic migrants I work with in a hurry to leave England to go back to their home countries. The Poles etc know that there are STILL more jobs and money here than back home.
And also, Americans will probably tell you that a many degrees are almost worthless when it comes to job hunting. They are in many countries. It feels like we were conned, like a degree was a promise of a secure future but I guess it's changed.
At least we from English-speaking countries dont have to face up to the immense task of learning another language to be able to compete eh?
How angry would that have made you? OK, you have a masters degree, but now you have to learn Polish or youre unemployable....
I envy America now because however you look at them they have done away with a government who were ruining their country. Feels like Britian is stuck with what we've got. As mentioned we could well be looking to America; or another, to drag us out of it.
Last edited by rusty1983 on Thu Jan 22, 2009 1:24 pm; edited 1 time in total |
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mises
Joined: 05 Nov 2007 Location: retired
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Posted: Wed Jan 21, 2009 4:59 pm Post subject: |
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http://globaleconomicanalysis.blogspot.com/2009/01/pound-sinks-as-britain-teeters-on-edge.html
^ A good round-up.
http://3.bp.blogspot.com/_nSTO-vZpSgc/SXefm8sycKI/AAAAAAAAFac/jTYWesSPUb8/s1600-h/%24xbp-monthly.png
^ A scary chart.
Neil wrote: |
I've got friends back home who are super qualified, we are talking MBAs from top unis at home and abroad, experience in the city ect and from emails I'm finding out at best they are losing much needed bonuses and at worse getting made redundant. Still I remember the same thing in 1992, it was harsh then but things picked up.
The housing thing is fecking silly, two friends my age (29) both with MBAs and a few years working for top banks behind them are still living with their parents....what hope for the average joe?.......although to be fair I'm from the SE of England which is significantly more expensive than the rest of the country. |
Yes, they're with mom and dad cause of London's housing prices, I assume. With London prices likely to fall 60-70% (and maybe more) off peak, I think they'll be able to afford a nice flat in a year or so.
MBA + banking experience is a signal to retrain, at this point.
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I think I might do the ESL cowboy thing for a couple more years until things pick up at home, short hours and good pay (relative to the cost of living) mean I can save and have time to retrain......I'm lucky to be well out of it. |
Agreed. You are lucky. |
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mises
Joined: 05 Nov 2007 Location: retired
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Posted: Wed Jan 21, 2009 5:08 pm Post subject: |
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rusty1983 wrote: |
And also, Americans will probably tell you that a many degrees are almost worthless when it comes to job hunting. They are in many countries. It feels like we were conned, like a degree was a promise of a secure future but I guess it's changed. |
Well, it depends on what you study. If you study an employable discipline (and there are still many with low barriers to entry) you'll find success. There are many, many graduate programs in the west that help liberal arts students prepare for a proper career.
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I envy America now because however you look at them they have done away with a government who were ruining their country. Feels like Britian is stuck with what we've got. As mentioned we could well be looking to America; or another, to drag us out of it. |
Agreed. |
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Bigfeet

Joined: 29 May 2008 Location: Grrrrr.....
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Posted: Wed Jan 21, 2009 8:51 pm Post subject: |
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I thought this quote about Iceland was funny:
"Has the population resorted to cannibalism yet?"
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Blockhead confidence
Joined: 02 Apr 2008
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Posted: Wed Jan 21, 2009 9:02 pm Post subject: |
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If Britain can be said to have a partisan newspaper, then the Telegraph is it. Its position is generally whatever makes the Labour party look bad, hence its nickname 'The Torygraph'. Take this for what it is worth. |
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