The experts' view: Twenty questions you were afraid to ask
Pundits speculate whether Britain is on the verge of bankruptcy. A currency dealer says sterling is "finished". David Cameron says Britain could soon "run out of money"... So just how bad are things? We asked a panel of our writers – business editor Margareta Pagano, personal finance editor Julian Knight, political commentator John Rentoul, and assistant editor David Randall – 20 key questions about the economy
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Independent Minds
Are we heading for bankruptcy?
Britain's debt is at record levels, sterling is falling like a stone, and investors are pushing up bond yields – a sure sign they want proper compensation for lending to the Government. But the bailiffs are only a distant prospect.
If we actually go bust, what would this mean?
A visit to the International Monetary Fund, national bailout, ignomy, Brown exiting Downing Street, and some severe public spending cuts...
How big is the national debt?
Officially, around £650bn. This doesn't include liabilities taken on by the nationalisation of Bradford & Bingley and Royal Bank of Scotland, nor more than £30bn of Private Finance Initiative projects that government accounting trickery has kept off the books. National debt could be as high as £850bn.
How deep is the recession?
The UK economy contracted by 1.5 per cent in the final three months of 2008. Output has not fallen so badly for more than 28 years.
Do we know the full extent of banks' toxic debt liabilities?
Absolutely not. Lending between banks seized up in 2007 because none of them trusted each other. This fear remains. Absurdly complex product and accounting structures mean bank bosses are most likely in the dark even about their own operations.
Is public spending really out of control?
Not yet. Gordon Brown has said: "We have low public debt, we have low inflation, wages are under control." Few economists agree. Research firm Capital Economics says: "Borrowing is going to rocket. Things are already pretty bad and there's worse to come."
How big a brake on recovery are high levels of personal debt?
Britons are the most indebted in the world. Between us, we owe around £1.4 trillion. Having to service all this debt has dragged down consumer spending. However, Bank of England rate cuts should aid recovery in the long term.
Will property prices stabilise this year?
Capital Economics says prices will not stabilise until early 2010.
The pound – is it all over?
Unlikely. Goldman Sachs last week told its clients to stick with sterling, which it expects to bounce back quite soon.
Can we afford present levels of public spending?
The real question is can we afford not to spend on big infrastructure projects?
Where in Britain is worst hit?
July-September 2008 jobless figures show unemployment in London at 7.4 per cent, second only to the North-east, at 8 per cent. Yorkshire & Humber, the North-west, Wales and West Midlands all come in around the 6.5-6.8 per cent range. Northern Ireland is lowest, with 4.1 per cent.
Does short-time working help?
It's a lot better than lost jobs because it means there are more people still in work – not taking benefits – and still paying taxes.
Where are the first genuine green shoots of recovery liable to appear?
Earlier this month, media giant Reed Elsevier raised $1.5bn in bonds to repay some debts. In pre-credit crunch times such a success was common, but it is unheard of now. This deal, and rumours of corporate takeovers, suggest the beginnings of resuscitation may appear in the City quite soon.
Do Brown and Darling know what they're doing?
Possibly. They err on the side of avoiding the worst. If throwing money at the problem averts a slump, it'll have been worth it. If it doesn't, we'll just have to get used to Swedish levels of tax for a decade or so.
Is the VAT cut likely to be repealed in the Budget?
Not a chance. The trickier question for Darling is whether to prolong it beyond 31 December, when critics say putting VAT back up will trample any green shoots.
Is the Government so associated with the problem that it cannot solve it?
If recession becomes slump, then Brown's departure will be a precondition of the return of confidence.
What should a young, non-property-owning person do?
Cut down on credit card debts, overdrafts or personal loans.
What should a property-owning, middle-aged person do?
Weigh the financial implications of unemployment. Look at building up at least six months' income in a savings account. Don't cut back on pension payments.
What should a retired person do?
Shop around for the best savings rate, but don't deposit more than £50,000 with any one bank.
Finally, should I emigrate, and, if so, to which country?
The Independent's Simon Calder recommends New Zealand or Dubai.
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Comments
Not if the UK is like Japan. But then the UK is not. The question comes down to how much you trust politicians in charge of the quantitative easing to turn off the printing presses. So the answer is really about who wins the next election.
But if you want in-depth knowledge on finding seeds to eat, am your man :-)
If we agree that, regardless of our dislike/distrust of the bankers, we need to clear out the Augean stable sitting in the banks loan books and remove toxic assets from their balance sheets then the following might be of value.
The problem as I understand it is that no one knows what the extent of the problem is, that is to say what are the toxic assets worth, and it will take forever to find out and will almost certainly be wrong.
An alternative approach might be to identify the good loans that the banks wish to keep on their books and to buy the rest from them at a price.
The price could be the face value less the maximum discount the individual bank could take as a hit without breaching its core capital ratios.
The payment could be in very long government stock. The state is going to take the hit anyway in the end.
We then have a pot of state owned assets which the taxpayers of the future are going to have to pay for.
These assets have a value (we just do not know what it is) and even if the primary borrower defaults there is still an asset there. Perhaps a clapboard house in downtown Detroit.
We issue shares in this pot of assets and give them to the poor taxpayers who have to fund this mess. We make them free of CGT,income tax and IHT and wait for the asset to recover even if it takes 50 years.(making them free of IHT will put quite a high value on them as an IHT shelter).
We even get some interest payments in the meantime
This will probably start when the UK finally has an elected PM at the helm again. As Chancellor before unelected PM, Gordon Brown and Labour in general get a big vote of no confidence from me.
When a country (?!) goes bankrupt, nothing has really happened. The people just THINK they're in trouble. The system that the people did not design or understand is telling them they're all broke. But think about it... there is still talent, labor, infrastructure, raw materials. Everyone CAN get back to work and provide for themselves, except for one tiny little detail...
Two:
Banks CREATE debt. That's what they sell. They don't have money to give you, they have debt to sell you. This is what money is. Sound bizarre? Incredible but true: banks don't have any money to lend until you go into debt to borrow it. There's no big vault holding depositor's cash... At most they hold just a few percent of the money people think they have "in the bank." It's all a clever system that tries to keep several balls juggling in the air when there are really only two hands to hold them all. One slip and everyone realizes that the whole thing is a house of cards and we all despair. But we don't have to.
Three:
Banking is founded on two absurd principles: fractional reserve and compound interest. Fractional reserve is just another phrase meaning they don't have all the money they claim to. Compound interest is a way for the rich to tax the poor. Is it any surprise that the most powerful people in the world are in the investment, banking, bonds, and securities industries? They create nothing but get to dip their hands into giant pools of money... shuffling it around, skimming off the top, and lying about everything.
The Answer to It All:
Banks create money. Look it up. That's all they do, and it's not magic. It's easy. The people need to create their own money, bypass the banks, bypass the interest, bypass the taxes, repudiate the fraudulent debt of this criminal system, and get back to life. Let's not let these parasites bleed us any longer, and don't believe the lies of the "economic experts" when they tell you we're all in a lot of trouble. Trouble for us means fortunes for them... they want bankruptcy, because they can foreclose. They want bailouts, because they get fresh money before it causes more inflation. They want downturns in the economy, because it makes things sell for cheap. They create the problems, they create the ups and downs, they manipulate the system to profit every step of the way. Stop listening to them.
transferring currrency out since 2000 when they arrived?
Comment good for the economy I don't think so.