Niall Ferguson is forever determined to be ignorant about differences between countries.   Amazing for a global historian of such repute.

UPDATE (had to write that in a rush).   What distinctions might he consider if he was not the sort of thinker who just thinks screaming DEBT!!!! is an argument?

One, as Richard notes below, the current account deficit.  Ours is about 2% of GDP, and recent manufacturing news suggests might fall further.  Greece’s is 10%.   Remember the IMF is about funding external balance problems.

Two, we have a free floating currency, as Flanders observes.

Three, Greece has plenty of competition from other issuers of euro-debt.  We are the only ones with sterling debt, and a fair amount of internal savers that need it.

All of these are obvious.


15 thoughts on “Is there a more unbalanced analysis of Britain’s debt problems than this?

  1. It looks like Niall Ferguson has been drinking the Kool-Aid again. The current account deficit is below 2% and falling. The benchmark 10-yr gilt is yielding 3.82% today. What exactly does he want the IMF to do? He can be so perceptive and interesting and on other occasions completely bonkers. I lasted a whole week at the same school that Niall Ferguson attended before leaving because I hated it. In hindsight it was probably a good decision.

  2. Tactics? Call in the IMF, they’ll look a bit non-plussed and point out they can’t really help, but you can show how tough you plan to be and how bad Labour have been. Then as things get better, take the credit?

    1. Not bad, a bit like what the CEO would do. But as Andrew Hill points out in Lombard today:

      A new chief executive taking the helm at a weakened company would usually search for efficiencies immediately, slash overheads and reduce the size of the workforce before attempting to squeeze as much productivity from the remaining staff as possible. When it comes to speed, that’s broadly what George Osborne, Tory shadow chancellor, outlined on Tuesday.

      But a new corporate boss usually doesn’t have to worry about the impact internal savings might have on demand for his company’s own product. Applied bluntly to the British economy, the kind of cuts that might turn round an underperforming business could undermine recovery

  3. There are 12 more reasons:

    1. We have our fiscal and monetary authorities located in the same place.

    2. Greek debt is something ridiculous like 130%, UK’s is something like 68%.

    3. We have a AAA rating, S&P recently downgraded Greece’s debt to junk.

    4. We are one of the largest economies in the world.

    5. We actually have growth (however tiny), Greece does not.

    6. Our debt is of a much longer average maturity.

    7. Greece was hugely fiscally irresponsible in the boom years, Brown only a little bit.

    8. Greece has a history of political instability. The UK much less so. The UK also doesn’t have protesters lobbing petrol bombs about on its streets, unlike Greece.

    9. A UK downgrade would imply a downgrade of US treasuries.

    10. As Richard pointed out above, gilt yields are low.

    11. We have a more flexible labour market than Greece.

    12. Just look at the history of British government debt. See how high it was in the 19th Century, or between 1914 and around 1960. That Ferguson does not know this as a historian is scandalous.

    Ferguson is clearly talking bollocks.

  4. In response to Alex above;

    1. Um, not really….monetary policy is at the BoE, which last I checked was independent.
    2. Greece is just over 100%, we are around 65% at moment. That doesn’t include unfunded pensions and PFI. On those numbers our debt looks the same as Greece’s at around 200% of GDP.
    3. This is true, but ratings are always backwards looking. The biggest purchases of CDS protection at the moment are on the UK.
    4. Trueish
    5. True
    6. True, though we also have a lot of inflation linked debt.
    7. Brown was massively fiscally irresponsible in the boom years. Not only was he overspending by about £30bn a year average between 2002-2008, he was hiding much of the capital expenditure through PFI. That bill, not acocunted for, is about £250bn. Our structural deficit is WORSE than Greeces.
    8. That is true. Tax evasion and rioting are basically Greek national pastimes.
    9. No it wouldn’t. UK is in a much worse situation than the US as GBP is not a reserve currency, even if the fiscal situations look similar.
    10. Gilt yields are low, but so were Greek yields only a year ago. All global rates are low at the moment – Gilt yields in themselves tell us nothing.
    11. Not materially true. Greek Labour market is quite flexible as most of it doesn’t pay tax.
    12. History of Government debt? You are equating the largest peacetime deficit and national debt to periods of major war. Didn’t anyone teach you that? Also, it’s not just national debt – we have huge personal/mortgage debt at the moment (£1.3tr of outstanding mortgages alone) which does have a major effect on the economy. Total debt of the UK is what you need to look at, and those figures show a very different story.

    I don’t really want to pick on you especially, and the points you make aren’t without some merit, but to say that Greece could never happen to us is very shortsighted. It can, and if we don’t do something pretty drastic about the budget deficit, it will. Gilts are really benefitting at the moment from people pulling their money out of European bonds (and a bit of a liquidity issue), but that won’t last forever. Running this massive deficit, and running up so much debt, will at best consign the UK to sub-par growth in the future, lower public spending, higher debt servicing costs, or at worst it will effectively bankrupt us.

    1. Since I praised Alex’s comment so high, I think I should come back here:

      1) this is naive, Tyler: the Treasury can rescind those powers, or redirect them as in the letters authorising QE. Greece cannot similarly write to the ECB
      2) The IMF is about funding crises – about not being able to afford payments TOMORROW. The LT picture is not really their business. What matters for the UK Greece comparison is how much refinancing and fresh debt need to be issued in the next few months or years. Longer term solvency issues like the pensions etc are important, sure, but also political issues (e.g. playing with the income replacement ratio/retirement ages)
      7) tend towards Tyler here. But irresponsible in different ways. Brown did not lie like the Greeks lied. He was optimistic about the growth cycle (see my A Balancing Act). It is not as endemic and irreversible as the sort of mendacious corruption greece showed – just oldfashioned hubristic incompetence.

      9) I think Alex needs to prove this, yes
      10) you may have the trading opportunity of your life then. Serious question: what is the price of a put option 10% out the money on a 10 year Gilt? Coz they are an outrageous bargain if you think the gilt market is badly out of whack
      11). I think we can push through lower pay rises much easier than the Greeks. See past 2 years of pay settlements.
      12 The cause of the debt is not the point. And private debts tend to have private, inside (I.e. UK) assets against them – and private creditors who are also UK (unlike Greece).

      I am not saying the UK is not in a very serious position. QUite clearly we are. So is Greece. But NF’s dumb equation of the two situations indicates that he is not capable or willing to distinguish between different kinds of problem. Greece is just not a useful template for us. Other disaster scenarios might be more handy. But to use Greece is, well, lazy and hyperbolic.

  5. In answer to the above Giles;

    1. Yes, you are correct there, but at the moment monetary and fiscal policy come from different houses. I do agree with you that the targets of monetary policy should be changed though.

    2. It is easier for us to refinance, so the chance of the UK going “broke” is pretty low (plus we can print GBP). BUT and here is the big but, these days you don’t really need to be bankrupt before your country is feeling the effects of what is effectively bankruptcy. Lots of different effects can occur, but in the UK i think one of the bigger ones will be on mortgage rates/resets (of which there are simply loads coming in the next 2 years) and the damage that will do to consumers and the banks holding those mortgages. The second round effects can often be as bad as the first, if not worse.

    7. Agreed – I’m not calling Brown a liar, just a muppet. He clearly believed his own rhetoric and simply kept spending more than we were earning in tax reciepts. The Greeks just lied about the budget deficit.

    9. That’s not to say though that the US and Japan (especially) aren’t in a pretty dire situation. US has the advantage of Chinese UST purchases though, thanks to their policy of pegged USD/RMB.

    10. Why do you think stocks have traded so well? Every pension fund out there has sold as many Gilts as possible during QE and dumped the money into equities. Despite £200bn of QE Gilts yields have actually gone up slightly….

    Look at it this way. Base rates are as low as they can go, inflation is punchy and stubborn, QE has ended, deficits are appalling and issuance is going to be heavy. Credit ratings might also be downgraded, and Gilts are already near all time highs. Why buy them? If you do short them, your downside is pretty limited, but the upside might be pretty big.

    I think the big buyers at the moment are people getting out of non-core European bonds and using Gilts, Bunds and USTs as a parking space for money which has come out of the equity markets in this latest fear driven shakeout. It’s a safety trade, not a value trade.

    I’ll try and get option prices for you but until I start my new contract I am a Bberg free zone….

    11. Not so sure. We are just as heavily unionized as the Greeks, and they have many more public sector bonus payments (13th month bonuses etc) which are easier to cut. The greeks also have a big advantage in so far as their tax system is regularly avoided, where ous is not. As such, they have much more scope to increase revenues materially by cutting down on tax evasion, where we can’t really.

    12. Point I really wanted to make is that public debts and rising yields can push private sector debts over the edge as well. It’s a double whammy, as the govt will be squeezing the taxpayer for more tax to pay the govt interest bills, but poor taxpyer is getting hit by higher mortgage bills as well. All of which reduces his/her spending power….all leading to lower growth. The government debt in itself is only part of the problem.

    We clearly aren’t in exactly the same situation as Greece, but that isn’t to say that what is happening there couldn’t happen here. Look over Europe, and plenty of coutries have had near misses and have/are enduring painful internal/external devaluations;


    Just spring to mind from the last 2 years. Not all have gone bankrupt, but the policy Labour have persued, and the deficit they have run up have made it much more likely the UK is going to be forced down a similar path.

    1. On another subject, you are proving more and more right about how the gilt movement is a flight to quality. The Dow etc is pretty scary right now. And rate expectations for Sep 11 have fallen 30bps in a couple of days.

      I’m backing a lot more QE.

  6. Thanks Giles! I found your blog through the some of your Liberal Conspiracy posts, and really much prefer it here….over there it gets all ranty shouty – I much prefer reasoned, analytical debate, which you yourself do well at providing.

    Regarding QE…I’m not sure. It’s forward starting debt in real terms, so I can see governments doing it to basically bail out some of the soverigns, but I’m not sure they really understand what effects it could have. Not even convinced markets fully understand what effects QE could have in the very long term…given that it really messes with debt maturity profiles.

    1. It is an extraordinary, difficult to read tool, but the ultimate guarantor against deflationary stagnation and downward debt spirals – do you read Sumner’s blog (the money illusion)?

  7. I don’t but will have a look at it.

    I definitely think defaltion is more scary than modest inflation, but its a very hard line to draw. I think the danger comes when it needs to be unwound – I think most political parties would struggle to withdraw that money from the economy, which means it (eventually) is forced to be refinanced (as the bonds QE bought mature) as more debt……for the moment it stays of balance sheet, but, as with PFI, it doesn’t mean that it doesn’t eventually need to be paid for, and unlike PFI for example, QE does eventually end up on the balance sheet. It can easily store up more problems for the future.

    Where the market decides the tipping point between help now against future trouble may lie, is anyones guess however.

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