Global budget deficits: A timeless love story
Many countries 鈥� including the US and the UK 鈥� have been seduced by ever-available debt. But this love story doesn't have a happy ending.
Nations and debt 鈥� a familiar love story.
Newscom
The Greek story is a universal tale鈥� It will soon be played by the UK鈥nd then it will be the US.
Let us summarize: Innocent fellows are seduced by debt. They fall in love with deficits. Debt proves to be an evil temptress. Our heroes are ruined.
Isn鈥檛 the story more or less the same in Britain and America too?
And now the pound is falling. It dropped below $1.50 on Tuesday. Instead of being a refuge against the troubled euro, investors are fleeing the English currency. Why? They figure that what happened to Greece could also happen to England. Britain鈥檚 budget deficit 鈥� at 12% of GDP 鈥� is almost the same as Greece鈥檚, twice as big as the European average.
鈥淚f you really want a fiscal problem, look at the UK,鈥� said Mark Schofield, a fixed-income strategist at Citigroup.
Not only does the government owe a lot of money, so do ordinary citizens. The overall level of debt is the second highest in the world, according to a Mckinsey study 鈥� right on the heels of Japan.
The falling pound makes it more dangerous to lend money to Britain. Investors have to worry not only about a default鈥ut about a loss due to currency decline. This should push up the cost of financing Britain鈥檚 deficits, putting the nation in the same fix as the Greeks. Like Greece, Britain needs foreign lenders to fund its deficits. And like Greece, it will be forced to promise austerity measures, if lenders balk.
鈥淭his is a ticking time bomb,鈥� said Nick Hopkinson of Property Portfolio Rescue, a company that assists overleveraged homeowners. 鈥淭here are over 400,000 people who are in arrears with their mortgage rates the cheapest they have ever been. When rates increase, a lot of people will be tipped over the edge.鈥�
鈥淚f rates go up, it will be a very dangerous situation for me鈥� It might lead me to consider bankruptcy,鈥� said Sheridan King, a UK sales manager. 鈥淲e are just struggling to get by with all this debt,鈥� he added. 鈥淚t鈥檚 time the government got its house in order.鈥�
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