Global budget deficits: A timeless love story(Read article summary)
Many countries – including the US and the UK – have been seduced by ever-available debt. But this love story doesn't have a happy ending.
The Greek story is a universal tale… It will soon be played by the UK…and then it will be the US.
Let us summarize: Innocent fellows are seduced by debt. They fall in love with deficits. Debt proves to be an evil temptress. Our heroes are ruined.
And now the pound is falling. It dropped below $1.50 on Tuesday. Instead of being a refuge against the troubled euro, investors are fleeing the English currency. Why? They figure that what happened to Greece could also happen to England. Britain’s budget deficit – at 12% of GDP – is almost the same as Greece’s, twice as big as the European average.
Not only does the government owe a lot of money, so do ordinary citizens. The overall level of debt is the second highest in the world, according to a Mckinsey study – right on the heels of Japan.
The falling pound makes it more dangerous to lend money to Britain. Investors have to worry not only about a default…but about a loss due to currency decline. This should push up the cost of financing Britain’s deficits, putting the nation in the same fix as the Greeks. Like Greece, Britain needs foreign lenders to fund its deficits. And like Greece, it will be forced to promise austerity measures, if lenders balk.
“This is a ticking time bomb,” said Nick Hopkinson of Property Portfolio Rescue, a company that assists overleveraged homeowners. “There are over 400,000 people who are in arrears with their mortgage rates the cheapest they have ever been. When rates increase, a lot of people will be tipped over the edge.”
“If rates go up, it will be a very dangerous situation for me… It might lead me to consider bankruptcy,” said Sheridan King, a UK sales manager. “We are just struggling to get by with all this debt,” he added. “It’s time the government got its house in order.”
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.