The McKinsey Global Institute’s has published an update to its January 2010 study entitled ‘Debt and deleveraging: The global credit bubble and its economic consequences’. The update reveals a startling fact: Britain’s total debt, that is, private, public and financial sector debt, is the highest in the world, far exceeding that of the eurozone countries being bailed out.
Over the past decade our total debt (the orange line on the chart below) has grown more rapidly than that of any other nation. The UK now sits just above Japan and far above Spain in third place.
Over the past twenty years our debt burden has gone from about average for a developed economy to top of the leader board. Historically such a huge build up of debt is followed by a prolonged period of deleveraging. This deleveraging typically sees consumers and businesses reduce spending in order to pay down debt – a process that puts a big drain on economic growth.
The McKinsey study looks at 45 historical examples of such deleveraging and finds that it typically lasts for six or seven years and ultimately reduces a nation’s debt to GDP by around 25%. In the case of the UK this would be equivalent to an entire year’s GDP and it’s a process that hasn’t yet begun.
Pingback: Forget the 'paradox of thrift'. Over-extended households indeed should pay off their bills – Telegraph Blogs
Industrial Revolution is the only way forward.
You do not have to be a Nobel Laureate in Economics to see why the UK is going down the pan. Outside my window, I can see massive cruise liners berthed at Southampton Docks, none of which were built in the UK; the vast majority of the ships’ crew are not UK Citizens. Only 30 years ago, the Port of Southampton’s hinterland was cram packed with large productive factories, decent multinational companies offering the Unionized workforce good wages and pension provisions. These industrial units have been wiped off the face of the earth and its productive capacity out sourced to impoverished ‘lesser breeds.’ The hitherto fertile manufacturing base, is now barren fallow land, mega car parks for imported cars. I blame New Labour for much of the economic chaos, check out the backgrounds of the main donors to New Labour and just who bought up half of the UK gold reserves at bargain basement prices. Prudent Gordon Brown sic. is a mountebank, New Labour flourished electorally on never-never economics. The UK is doomed–Thanks Socialist Tony Blair and co. Then again David Cameron rabbits on ad nauseam about the crucial important role of the City, he finds it almost impossible to discuss the re-industrialization of the UK as a sane viable option.