STAFF NEWS & ANALYSIS
Britain's Increasing Insolvency: Will the Center Hold?
By Staff News & Analysis - April 04, 2013

Britain's debt mountain reaches £1.39TRILLION, equivalent to 90% of the entire economy, ONS reveals … Gross debt at the end of 2012 stood at £1.387trillion, up 7% on 2011 Vast sum is equivalent to 90% of GDP – up from38% a decade ago Figures used to compare UK to the rest of Europe Mounting debts reveal the devastating impact of the 2007 crash … Britain's debt mountain has topped £1.387trillion, and is now the equivalent of 90 per cent of the entire economy. The grim milestone was passed at the end of 2012, new figures from the Office for National Statistics revealed today. It lays bare the dire state of the nation's finances in the wake of the 2007 financial crash, which has seen government debt double in just five years. – Daily Mail

Dominant Social Theme: Britain is digging itself out of problems. All will be well.

Free-Market Analysis: Almost every week in the European – British – press we are treated to yet another optimistic forecast about Britain's economic condition. And yet it keeps deteriorating. This admission by government officials about the reality of the British fiscal condition is surprising only in light of such previous optimistic statements.

Almost six years after the initiation of the Great Economic Crisis, Britain's economy is no better off. The US economy is commonly held to be better, in part because of the aggressive moves of Federal Reserve Chairman Ben Bernanke. But we doubt that as well.

Both Britain and the US are caught in a trap of lower interest rates and high monetary stimulation, though admittedly Bank of England hasn't been quite as aggressive as the Fed. The trap has to do with the necessity of continuing to create conditions where interest rates remain low. Otherwise, both Britain and the US – and various European countries, as well – would not be able to service their debt.

The real problem is government spending and the limits of monopoly central banking to provide liquidity. Too much liquidity and eventually the velocity of money increases as economic conditions improve. The result is price inflation leading to rate tightening. Rates go up and solvency goes down. Sovereign bankruptcy would seem to be the inevitable result.

Britain, like other Western countries, seems headed in that direction. Here's more from the article:

Gross national debt has risen dramatically since the financial crash in 2007, new figures from the Office for National Statistics show … The ONS said that in December gross debt, which includes all financial liabilities of both central and local government but does not take account of liquid assets, was £1,387,436,000,000, up seven per cent on a year earlier.

The dismal state of government borrowing has already forced Chancellor George Osborne to abandon his target to see net debt, a different measure, falling as a percentage of the economy by 2015-16. But he has refused to budge on his austerity programme.

In last month's Budget, Mr Osborne told MPs his chance of meeting his debt targets had 'deteriorated'. He added: 'There are those who would want to cut much more than we are planning to – and chase the debt target. 'I said in December that I thought that with the current weak economic conditions across Europe that would be a mistake. We've got a plan to cut our structural deficit. And our country's credibility comes from delivering that plan, not altering it with every forecast.'

We can see from this last paragraph that the government "has a plan" – but we have lost track of the number of plans that the British government has floated both toward the end of Labour's term and throughout the current regime. None of these plans have arrested Britain's gradual spiral down.

The problem Britain faces – and the West generally – is the inevitable decay of monopoly fiat money. The main solution being implemented in Britain and elsewhere is "austerity" … but UK government officials have already admitted that even austerity is impossible to implement in a way that efficiently euthanizes debt.

The problem is complicated by Britain's dysfunctional economy that has generated neither additional jobs nor additional wealth for years now. Even if one believes these difficulties were in part set in motion to create momentum for yet more government centralization, the reality is that the trends are increasingly troublesome.

In the 20th century such issues might have been treated as unfortunate but unavoidable. In the 21st, people seem increasingly less willing to accept the remedies that their leaders propose. See this article here: Terrible Costs of a 'Modern Economy'.

After Thoughts

Britain is not doing any better at solving its intractable troubles than Europe or the US. And in all three countries, the same question can be asked: Will the center hold?

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