Hamish McRae: ‘we have plunged deeper and deeper into debt”. Which summons the obvious question to whom? You can’t be in debt to the Martians, I always like to say.    The obvious candidates are:

  • furriners
  • people who live in Blighty

This was a similar point to one that I heard Niall Ferguson make, comparing the UK to its post-Napoleonic debt situation (and accompanying turmoil).  He failed to acknowledge how the British debt, then as now, is owned by, um, the British.  His attempt to lump the US with Greece is admirably smacked down by George Magnus in a letter.

Which brings me on to Roger Bootle’s similarly mature outlook on the UK, “Financial problems are easily solvable”.  He writes:

It is essential to distinguish between the position of the government and the position of the country . . . The figures for net external assets are extremely ropey and need to be treated with caution. In the UK’s case they may well understate our true position. But according to National Statistics, at the latest count we had net external liabilities of about 7pc of GDP. By contrast, according to IMF figures Ireland, Greece and Spain have much larger net liabilities of 55pc, 70pc and 75pc respectively . . .  Moreover, because our net international asset position is roughly balanced, to the extent that foreigners hold a significant proportion of our government debt then British nationals must hold a significant part of other countries’ assets, including their government debt.

Here is a graph of our net asset position:

The figures are in £.  When the £ weakens, our foreign assets gain in value; we devalue the liabilities we owe the furriners.

This is not a picture that screams “default!”.  Bear in mind that given current monetary arrangements, we probably make a profit on the difference; pay the foreign creditors less than they pay us.

And as Krugman points out Greek Troubles are More than Fiscal.  They have become incredibly uncompetitive.  On the other hand, since Jan 2007, according to the ONS, the average wage including bonus is just 8% higher in the UK.  Take out 25% of a devaluation, and it costs 20% less to hire an hour of British labour.  Compare that with what is going on in Greece.   This is one of many reasons why comparing us to the Greeks is boneheaded.


One thought on “Two views on debt

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