Finance Reaper

Will the next ITALY step forward…Darn those frogs!

UK Government debt may become no better than Italy.

How strange that from the jaws of desperation and defeat some of the best decisions are made. It was just such a defeat suffered by the Royal Navy at the hands of the French in 1690, that lead to the formation of The Bank of England.

Who would of thought that the Battle of Beachy Head would lead to domination of the worlds seas for the next 300 years.

The Bank of England was formed to allow the government to borrow money. Half of the proceeds went straight into ship building. The debt of both Government and the private sector went through peaks and trough caused by  boom bust and wars and up until 1997 was perfectly manageable. However, over the next decade both forms of debt tripled.  This remarkable accretion of debt was not purely a UK phenomenon. Some argue that the UK debt to GDP ratio has been higher in the past and will not lead to a catastrophe this time. Sadly things are totally different this time round. We are no longer a global powerhouse of manufacturing and production with a large trade surplus. Our Education system is no longer the envy of the world and the most dominant empire in history is no longer.

The true picture of the governments liabilities is unknown. Losses on bank holdings, crazy PFI costs, pension time-bomb and a rapidly aging population to name but a few.

2012 will see consumption decline year on year in value terms (retail sales are virtually unchanged in volume terms over the past 3 years) reducing the VAT take. Already vacant high streets will fail at an alarming rate. The change to the payment of rates on vacant properties in the last budget will eventually drive the value of commercial properties much lower. 2012 sees massive debt rollovers by industrial property companies who will struggle to meet the old banking covenants let alone the more stringent demands the banks are likely to make.

Corporation tax in general will come under pressure with the added problem of the Banking sector not repeating the many billions paid during the good times.

Income tax receipts will struggle as salaries come under further pressure coupled with bonuses (in the city alone) likely to be billions down on last year. Unemployment will continue to rise with all the associated costs to the social security budget.

The debt of the private sector was supported by the meteoric rise in property prices and is still the supporting factor. Arguments that immigration (supply/demand) and low interest rates (affordability) will help support prices is hard to accept if the economy deteriorates still further. Buy to let activity has been a supportive factor in a low turnover environment.
However, rent arrears are soaring and the seemingly attractive yields will take a back seat when prices decline 20%.

The government will adopt a more relaxed attitude towards Retail and general commercial property being converted into residential supply.

As banks collapse their balance sheets and divest of the Investment banking activities which got them into this mess, money supply will shrink at the very time the Beach Head mob will be pumping ever more on the QE lever to inflate.

Velocity (see earlier article) will come under pressure causing a double whammy to the economy.

What, I hear you say of Sterling.
It has enjoyed its little holiday in the glow of European fires. The truth about our fiscal predicament will put it under renewed pressure. Whilst it is at the low of its trading range a break of £/$ 1.5350 will lead to a test of the 2000 and 2008 lows of £/$ 1.40. Holding inflation above earnings much longer than we would like.

2012 Will be the UK`s Beachy Head moment. The dark days ahead will lead to a cancelling of our EU membership. Out of the gloom will be a realisation that our social experiment with Liberalism has failed miserably. Yes, it is going to be very difficult and will bring a lot of pain. Hopefully a new breed of Great Britain’s will be thrust on the stage to lead us out of the
carnage which lies ahead.

 

Tags: Commercial Property, Consumers, Housing

2 Comments to Will the next ITALY step forward…Darn those frogs!

1. […] As one of my readers, you’re probably going to be in receipt of a number of gadgets, gizmo’s and techno-treats this year (despite the death of the British Pound according to my friend HERE) […]
CommsBlog » CommsBlog Xmas Special on December 19th, 2011

2. […] City of London Rapes Pensioners […]
City of London Rapes Pensioners | Finance Reaper on October 21st, 2012

Leave a comment

You must be logged in to post a comment.