About UK´s unsustainable debt

Discussion in 'Wall St. News' started by ASusilovic, Nov 25, 2010.

  1. Financial Times and other outlets have been successful in hiding the debt picture for the UK.

    While the official statistic looks like this :


    it hides the "guarantees" that the government has pledged to "ring fence" the UK´s bank debt.

    Now, there is a new situation :

    1) UK banks are heavily involved in Ireland
    2) A lot of UK borrowers have taken on loans in Spain for their adventurous "real estate investments"

    Conclusion :

    The UK has to be attacked, too if any attack by speculators is in the working on Spain.

    Have fun !
  2. I agree. All the Eurozone currencies are screaming shorts. That includes the Scandinavian ones and the Swiss Franc, although they should go down less than the Euro and pound.

    GBP currently is not pricing in any contagion risk at all, which is absurd. The pound has a good chance of trading at 1.30 within a year or two, and may eventually go down to parity with the dollar as its structurally unsound economy, banks, and government start showing cracks and rolling over.

    My prediction is that the current coalition will fail before the next election, at least one major UK Bank will fold, and the pound will collapse. Gold and US dollars are the place to keep your capital, and the dollar has the advantage of being THE most contrarian play in the market right now.
  3. Folks underestimate the extent to which the GBP is an oil currency and an emerging market currency. London may as well be a Middle Eastern capital. If oil stays strong, it will underpin cable.
  4. Visaria


    Explain more pls. I live in London and wouldn't think of the pound as an oil currency.
  5. What do the numbers on the y-axis represent?
  6. henry76


    The British press won't be hiding state of economy ,. more likley to make up rubbish to scare monger and sell chip paper .I trust your a multi millionaire from these wonderfull insights you have ???
  7. Yearly government debt / GDP ratio and overall debt / GDP ratio.
  8. LeeD


    That's an interesting idea. According to Bank of England the total value of deposists from individuals and individuals trusts (these are the "guaranteed" deposits") was £938 bln in Q3 2010. This is about the size of the reported government debt.

    It's important to note that the guarantees will become expensive only if and when the respective banks collapse. In practice, with teh guaratees the banks may be able to run for many years even when being technically insolvent.

    So, this liability becomes a danager only if a few large banks are insolvent and if they are allowed to collapse. Given the past experience the latter would happen under only much more extreme circumstances than what was in 2008.

    1) If you exclude very few direct financing deals the Britiosh banks are involved with their Irish subsidiaries. If these applied to be regulated by the Irish authorities (and don't work via "passport" scheme) it will be the liability of the Irish government to bail them out.

    For comparison, a collpased Icelandic bank was taking deposits in teh UK through a passport scheme. Though the UK government guarantees don't cover such banks, the government decided to pay out to depositors anyway and claims that Iceland ows the money spent on the bailout. Given this "debt" is the size of yearly Icelandic GDP (after teh currency collapsed) natirally Icelanders object.

    2) These loans are usually financed by Spanish banks. UK banks wouldn't be able to avaluate a house abroad and hence ordinarily don't approve such loans.
  9. The UK debt is much higher than reported.

    Check this link for more information:


    The private finance initiative (PFI) is a procurement method which secures private funding for public institutions in return for part-privatisation. PFI is also an operational framework which transfers responsibility, but not accountability, for the delivery of public services to private companies. PFI projects aim to deliver infrastructure on behalf of the public sector, together with the provision of associated services such as maintenance. Under PFI the private sector operates facilities as well as providing finance, so some public sector staff have their employment contracts transferred to the private sector through a process known as TUPE. Every PFI deal has its own particular characteristics.

    PFI contracts are currently off-balance-sheet, meaning that they do not show up as part of the national debt as measured by government statistics such as the Public Sector Borrowing Requirement (PSBR). The technical reason for this is that the government authority taking out the PFI contract pays a single charge (the 'Unitary Charge') for both the initial capital spend and the on-going maintenance and operation costs. This means that the entire contract is classed as revenue spending rather than capital spending. As a result neither the capital spend nor the long-term revenue obligation appears on the government's balance sheet. Were the total PFI liability to be shown on the UK balance sheet it would greatly increase the UK national debt. When international accounting standards are adopted this will probably result in most PFI debt being brought onto the Government's balance sheet. Even supporters of PFI have recognised that this lack of transparency is an issue. For example, in 2007 Neil Bentley, the CBI's Director of Public Services, told a conference that the CBI was keen for the government to press ahead with accounting rule changes that would put large numbers of PFI projects onto the government's books. He was concerned that accusations of "accounting tricks" were delaying PFI projects.

    quiz: what would be the actual public debt as a % of GDP if PFIs were included in the calculations?

  10. LeeD


    The wikipedia article you linked says the value of future pyment according to PFI contracts was £215bn. Assuming that the future quango payments stayed teh same (hopefully soem got repaid) and that there is no "present value" effect this adds about 24% to the official government debt. Not game-breaking but a lot...

    Note that you can count other predicatable budget items such as salary of police forces the same way as PFIs...
    #10     Nov 25, 2010