Greece, Spain… and Britain

 

I am occasionally asked where one’s money is best kept, in a British bank in sterling or Spanish bank in euros.

One would need a crystal ball to give an opinion with confidence.

The latter, though still in intensive care, is allegedly in recovery.

I am not convinced. Ask a dozen experts and you get a dozen different replies.

Their track record is not encouraging. They all analyse data looking for clues; much of it is contradictory and the industry, even the International Monetary Fund (IMF), has not a good record in making predictions. Much of it is smoke and mirrors so why not fall back on gut instinct?

With attention focused on the Euro the pound sterling has avoided scrutiny.

This provided a comfort zone; no news being good news. Here is the bad news. Official figures put the United Kingdom debt at around £900bn and rising fast.

This is the equivalent to 60 per cent of Gross Domestic Product (GDP). It gets worse.

If the financial sector interventions are included, Britain’s total debt figure reaches £2.24 trillion or if you like 147 percent of GDP. In everyday language it puts Britain on a par with Greece and Spain.

There has been smug satisfaction at France’s rating being nudged down. Of more concern is the highly suspect triple A rating that Britain enjoys, which is wholly undeserved.

Certainly some traders, who should know better, suggest the UK is a safe haven. My guess is they may soon be eating their words. It is all down to basics; the UK is far from self sufficient and highly vulnerable to fluctuations, especially Euro wobbles.

Some of England’s more patriotic scribes, when shown to be smug at the Euros uncertain performance, might find themselves peeing against the wind.

Their assumptions will come under fire if the UK market begins to weaken and the bond market mavericks put the UK economy in their crosshairs.

According to the McKinsey Global Institute, Britain’s total debt, composed of private, public and financial sector borrowing, is the highest in the world.

Britain has enjoyed relative immunity in the credit sector. If the sovereign debt comes under fire it could face a nightmare scenario of high inflation and massive contraction as costs related to its debt soar.

Pushing someone off a wall is easy; stopping them fall is a little more difficult.

 

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