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Friday, 20 February 2009

Net debt to reach 300% of GDP?

The ONS has announced that both RBS and Lloyds Banking Group will be reclassified as public sector from October 13 2008, when Government recapitalisation was agreed. Public sector finance statistics for January 2009 show that public debt currently stands at £703billion, which includes £50 billion from the bailout of Bradford and Bingley last year. According to some press reports, when the impact of Lloyds Banking Group and RBS are taken into account, the ONS predicts that the impact to public sector net debt could be between £1 trillion and £1.5trillion, which could bring the UK's total debt to more than £2 trillion.

This isn’t half of the story. The £700 billion of national debt excludes PFI, say £100 billion and about the same again in various other off-balance sheet wheezes such as Network Rail's debt and private sector pension protection. There are also about £1 trillion of UK public sector pension liabilities which other governments show as liabilities in their accounts.

For example, in America, to pay pensions the government issues debt securities to a Federal pension fund, so that pensions are fully funded albeit by a claim on the government. The net effect is that pension fund holds a tangible claim on the government and the liability ends up being properly recorded as part of the US National Debt. In the UK, the government hides its head in the sand.

Add to that IAS accounting changes which mean that RBS's liabilities are no longer the trillion or so in their 2007 accounts that the ONS probably used for their calculations but probably closer to £1.9 trillion, and we have no idea what the comparable ajustment is for Lloyds/HBOS.

So instead of the £2.2 trillion or so that the ONS is talking about, the real scale of true liabilities is actually around £4.3 trillion, or 300% of GDP.

13 comments:

Anonymous said...

I believe GDP is ~GBP1.4bn in which case public liabilities are ~300% of GDP not 600% - still a lot of money

Anonymous said...

fuck me, i've just shat myself

Alex said...

Anonymous - correct. Too much early morning maths does the head in. Corrected aftera cup of coffee. Still as you say a lot of money, and a lot of it is offset by bank assets, but if they are on the banks' balance sheets they deserve to be on the governments, otherwise what is the point of accounting for asset and liabilities on a gross basis?

Anonymous said...

But it's even worse because GDP is collapsing. I still find it amazing how people are in denial about this. Stunning.

Alex said...

Anonymous said...
"But it's even worse because GDP is collapsing. I still find it amazing how people are in denial about this. Stunning."

Well, not really because if the liabilities are mostly in sterling and sterling is collapsing, then it takes less real world goods and services to pay off the debt.

Brown's problem is that GDP is also collapsing - we don't know by howmuch but we know tax revenues are down by 11% year on year (mostly VAT and corporation tax), which is a verbig drop.

Add to that the story in the Times about the governemnt going to public sector pension funds to raise equity for PFI/schools because they can't get it from their usual sources, and you see they are in a real mess.

Anonymous said...

If I may ask a silly question. Money can be won or lost but, the wealth and assets that back it must still there. So - here is my question. Where has the wealth gone? Who now owns it - as someone must and, sure as hell, we don't seem to. To my simple brain, it seems a conundrum that, the problem seems to have been caused by too much credit (ie: money) sloshing around in the system being controlled by idiot bankers and criminal ministers. Yet - just about every government in the world seems to have run out of money at once - each owing the others more than the countries are worth. So - who owns the assets that backed all of this? If I put my house on the line and fail, then the bank would own it. In this case, it does not seem clear who the hell owns anything. If all of this money has stopped "revolving", then it must have come to rest somewhere. If. as I suspect, this now resides in most of our banks then - why the hell are we all being made (under penalty of law) to support their bottom line liquidity? Is this just a cynical way of simply removing the concept of private ownership and simply "nationalising" each and every one of us - with the exception of the "chosen few"? If so, the Billderberger (sorry about the spelling) would appear to well on track my fellow slaves.

What exactly is money said...

The Fraudulent Monetary System that has enslaved us

The Endgame is upon us said...

The New World Order for Dummies

The Home Secretary's ID Card Agenda Revealed

Forget the BBC Listen in to Radio Truth Radio Here

False flag said...

Did you really think Osama did it.
July 7th and Benazir Bhutto

Alex said...

Anonymous said...
"If I may ask a silly question. Money can be won or lost but, the wealth and assets that back it must still there. So - here is my question. Where has the wealth gone? Who now owns it - as someone must and, sure as hell, we don't seem to."

A lot of the extra liabilities from the banks are sort of matched with assets, although the assets (loans to customers) may or may not be repaid. So there is no immediate wealth loss, but the tax payer is now on the hook for those losses.

Of the rest, well this is simply a question of the government spending more money than it takes in taxes.

Some of that may be in welfare bribery, or paying ever-increasing pay and benefits to ever more public sector workers, but it also includes a very large promise of pensions for civil servants that simply doesn't show up in the government's accounts.

So we have hundreds of billions going to overpriced government contracts, welfare receipients and civils ervants, which one would hope either goes back into the economy or in savings, but it doesn't. It goes to pay for the iPods, imported cars and foreign just-about-everything that we buy, so that it ends up in the pockets of Herr Schmidt and Mr Wong.

Our problem is that apart from North Sea oil, aero engines and precious little else, there is very little that we do here that actually generates any sales to the outside world, and we can't keep our lifestyle above third world standards for ever by selling each other credit default swaps and life insurance.

Scary Biscuits said...

Alex, it is worse that GDP is collapsing. Whilst most traditional government debt is denominated in sterling, much of this new bank acquired debt is in dollars.

The only thing propping up sterling at the moment is the knowledge that Brown will be out of government in 15 months and therefore the amount of damage he can do is limited. If they lose this belief or lose faith in Cameron too (not unlikely given how woefully behind the curve he has been on the economy) then sterling could collapse. In that case, public debt could easily be as much as the 600% of GDP you originally guessed.

Anon asks, 'where has all the wealth gone?' The answer is that it never existed. Bank lending used to be on a 1:1 ratio to the assets they secured it against. These days it's nearer 7:1. That is 6/7ths of their wealth doesn't exist in reality. They have achieved this by ceasing to lend to real industry and instead lending to each other, creating a merry-go-round of money disconnected from the real world and designed to keep Western Governments aflost by disguising the collapse in Western industrial competitiveness with the happy side effect of unlimited bonuses for bank workers in return for going along with the deception.

Adrian P said...

The Fraudulent Monetary System that has enslaved us
Liberalism, Subversion, Fabianism and Keynesian Economics

Anonymous said...

along with gdp collapsing it's my sincere wish that mcbroon would collapse, with a massive unrecoverable heart attack.