Monday, 12 December 2011


In this 3rd and final part of our plain English guide to state we are all in we look beyond the UK's shores and identify that he banking crisis of 2008 hit not only the UK, Europe and the US, its aftershocks were felt across the globe, China and India's economies for example may still be growing faster than anyone Else's at present but if their continued growth is to be maintained then they need a market for their goods they are producing abroad and if the rest of the world is in recession and no one is buying those goods then that will have its own negative impact. This "world view" of the economic troubles facing citizens around the globe is also accompanied by a series of infographics which I hope assist with the explanations to enlarge on any diagram just click it

But before we can make total sense of what the current crisis is doing to the economies of different countries and how it affects us here in the UK we have to understand where we as a country sit at the table as a player, and also where we are expected to be in future years based on current and historical growth. In the UK this is critical because as you will see from the infographic below the UK economy is due to contract sharply irrespective of any current downturn.  So irrespective of the recession we are already facing an expected drop in our wealth and position as China and India and others take their place at the top of the manufacturing league.

But Britain's real fragility is only really exposed in its totality when you compare the contraction in our own growth and income with a much broader set of countries including those outside of the top ten above. This next chart therefore shows just how close Cameron and Clegg's cuts without growth programme has put us in comparison with those economies like Greece, Ireland and Italy which are presently close to collapse.


 Are you worried yet? well you should be as thanks to Cameron's go it alone stance in Europe we are isolated even further and unlike those in the Euro Zone we have no one to bail us out if the market takes a run on the pound.

The next nettle for us to grasp is how big is the UK's debt when measured against other countries in the world, and what do the credit reference organisations (see below) think about our ability to being able to pay the money back? Just like individuals having a credit reference record, so do countries and the biggest credit reference company to rate countries is a company called Standard and Poor's, ironic really when you consider that our banks seem to have no standards and their actions are making us all poor! Anyhow a reduction in your rating, (ratings go from AAA+ to C-)  just as with any individual makes it more difficult for the country to borrow more money which then pushes up the interest rate that they will have to pay to borrow, which in turn increases the GDP to debt ratio which ends up with Standard and Poor reducing the rating even further, in other words the banks make the debt ridden countries pay more for their borrowing because they say the risk is higher which in turn effects their rating which pushes the interest rate up even further and they go round and round in circles until they can/t afford to borrow from the banks at all, at which time they are in need of a hand out from the IMF (International Monetary Fund) or the European Central Bank. This next graphic is very revealing in not only showing you the ratings but also in understanding who is close the edge and who could be next for the vultures in the City to circle around

As you can see the UK's debt as a % of it GDP (what we earn) is very high at 83% and rising but it is nowhere near some of our other competitors. Ireland and Italy and of course Greece all with 100% + GDP/Debt ratios have all seen runs on their economy recently and have all faced and still may face financial meltdown. All have lost their (A) ratings and have been downgraded to B's and yet Japan which owes a massive 229% of its GDP still hangs on to an A rating (albeit AA-) so why is this?

Well Standards and Poor's take into account a Countries growth projections, and Japan is still seen as a good bet in terms of its manufacturing base, It is also worth noting that the above figures are also based on earlier 2011 forecasts predicting the UK growth figure way above the actual achieved. In reality because the current government are now planning to borrow even more than the last Labour Government planned to borrow if elected, due to increases in welfare payments and a period of flat growth, we now risk the UK's rating also being downgraded.

Standard and Poor's have in fact hinted at a rating downgrading of all countries within the Eurozone, which seems crazy given that there is a vast gulf between the performance of say the Greek and Italian economies when compared with say the German economy, but their excuse is that Germany and others may have to pay more towards any bailout of Greece or Italy and therefore their rating as well as the ratings of more indebted countries also has to be altered.

In other words a butterfly flaps it's wings in Athens and the aftershock is felt all the way over in in Berlin. It is in this context that David Cameron's disastrous walk out at the recent Euro summit last week. simply adds more fuel to the pessimistic forecasters who will now say that without all 27 countries committed to a Euro rescue plan the markets will not be satisfied. the markets then of course say they are not satisfied as they make money out of each and every crisis and the whole merry go round continues. One question of course for David Cameron and the UK is that if we are not going to be there to help back up the Euro in its hour of need then who will come to our aid if there is a run on the pound? also as most of our import and export markets are within the Eurozone then what happens to the British Economy if the Euro goes belly up?

My old comrade Dennis Skinner was right to call Cameron a plonker in the Commons last Wednesday but you have to wonder how foolish the PM must have felt having issued such a ridiculous ultimatum to the other 26 countries. I imagine a David Cameron stood at the door of the meeting room saying "Give me what I want or I will walk" "Au Revoir" and "Aud Weidershen" came the reply "and shut the door as you leave" This followed by "Call me Dave" walking very slowly down the corridor shouting "I mean it, I won't be back" to sounds of cheers coming from behind the now closed door. I imagine he was even asking the airline staff in the departure lounge whether or not anyone had phoned to call him back.

Whatever the truth about those fateful non negotiations, we have now as a country have put the Euro even more at risk, and as a consequence potentially damaged not just the latest Euro rescue plan but also massively weakened our position with our biggest trading partners.

And that's enough bad news for one day and where I will leave it for now, but I do hope this short series has informed and assisted people to get their heads around the core issues surrounding the world recession and also where the UK sits.

I also hope the graphs and infographics have helped, they are all up to date and where possible I have provided the source in order that you can check for yourself the data, but the most frequent comment I hear from people is that they just can't get their heads around the figures and the size of say a billion pounds or how one debt compares with another, so I have saved you my final infographic to give you a comparative view.

The billion pound o gram was produced back in 2009 by the guardian after the banking crisis had first hit in the year before. The deficit between what we earned and spent was £175bn, but how does that compare with say how much we spend a year on trident or the cost of Local Government across the UK well below you have the answer in scale. So now you know that political manipulation by the current government in reducing Local Government spending by a few % here and there is but a drop in the ocean when compared with the cost of bailing out the banks which caused the crisis in the first place. More on the billion pound o gram can be found here



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