Britain's Trillion Pound Horror

[Quillan]

I don't suppose anyone watched this last night, certainly put things in to perspective. The two things that got me was when they showed the number 4,200,000,000,000 and asked people how much that was most seemed to think it was either 42 billion or 4.2 million. The other question asked was how much does the UK owe, this was asked across a spectrum of MP's from different parties and the answers were, 1) Nothing to do with me, ask the treasury, 2) I don't know, 3) about 153 billion. Well if the politicians don't know then we have a problem. Even Darling had to think and was unsure.

The other thing that was good fun to watch was Brendan Barber who was asked who pays for the public sector workers, he said the government, he was then asked where the money came from and then he started to shift around on his chair looking in every direction except towards the interviewer. It was then pointed out to him that the government does not have any money, it never has done, its our money, end of interview.

Anyway it would be interesting to see what other thoughts people may have who watched it. If you missed it you can (perhaps) view it HERE

[just john]

The most striking thing for me was the primary school children getting an understanding of what was in store for them to pay back.

[Quillan]

Absolutly John, they seemed more 'tuned in' than many of the adults on the program.

[Pickles]

[quote user="Quillan"]The two things that got me was when they showed the number 4,200,000,000,000 and asked people how much that was most seemed to think it was either 42 billion or 4.2 million. [/quote]

It was only relatively recently that we gave up the UK definition of billion (1 billion = 1 million million) - under which the above number would be 4.2 billion - in favour of the US definition of 1 billion = 1 thousand million.

Regards

Pickles

[AnOther]

Billion/Trillion/Zillion, it was put into perspective graphically by (virtually) piling £50 notes (0.1mm thick each or 2mm/£1000) on top of each other to create a pile some 6000 miles or so high and also, standing peeling £50 notes off a wad, it would have taken 3000 years odd to count of the equivalent of the debt. Actually you might never have never reached the end as the sum would have been increasing faster than you could count !

Another statistic; If you sold off every house in the land it would not have covered the debt.

Brenden Barber was completely out of his depth, it was embarrasing and delicious.

Anyone for a flat tax ?

[Alan Zoff]

Whilst I agreed with a lot of what was said, the programme would have carried more weight had it been more balanced. There was an awful lot of repetition, hammering home a one-sided message, without anyone to put forward a measured, opposing view. The banking crisis/credit crunch was almost side-stepped as an irrelevance, all the blame being focussed on big government as if a totally unregulated economy would put an end to all problems.

Pity, because had it been handled with a less blinkered approach, it would I think have been taken a lot more seriously by people from all sides.

[brianagain]

So if everyone in the UK sold off their houses to raise the capital, who exactly would they have to give it to in order to pay off part of this debt?

The programme in my opinion was unbalanced, too full of slick editing and taking soundbites out of context, while seeking to undermine any case for central provision of essential services; do we (in the UK/France) really want an American style health service which depends on a person's  ability to pay and which profits only the Pharmaceutical and Insurance industries. Meanwhile, the recent banking crisis proves that unfettered capitalism is not the answer to the economic crisis, and not just in the UK.

Brian (again)

[Théière]

Nice to see how much China has as a surplus...........and then we forget all about human rights.....

Nice to see how China has

[Quillan]

[quote user="AnOther"]

Brenden Barber was completely out of his depth, it was embarrasing and delicious.

[/quote]

Wasn't it just, he just didn't know where to look or what to say, brilliant, I hope his members were watching (or should I say his members, members). [;-)]

[quote user="Alan Zoff"]Whilst I agreed with a lot of what was said, the programme would have carried more weight had it been more balanced. There was an awful lot of repetition, hammering home a one-sided message, without anyone to put forward a measured, opposing view. The banking crisis/credit crunch was almost side-stepped as an irrelevance, all the blame being focussed on big government as if a totally unregulated economy would put an end to all problems. Pity, because had it been handled with a less blinkered approach, it would I think have been taken a lot more seriously by people from all sides.[/quote]

Well it is in a way because it's a pea in the ocean compared to the national debt. You can't just blame the bankers either the public have accept some of the blame as it was them that borrowed the money from the banks often in the full knowledge of the person taking the loan and the person giving it that they had no chance of ever paying it back.

[quote user="brianagain"]do we (in the UK/France) really want an American style health service which depends on a person's ability to pay and which profits only the Pharmaceutical and Insurance industries.

Brian (again)
[/quote]

That's not what the program said at all. If for example you lucky enough to be in France on a E121 or are under the old regime of the E106 giving you permanent entry to the French system you may not be appreciative of how it works. The money you pay for healthcare if you work here is collected by one of the insurance companies that is on the approved list you are given. They collect the money and administrate it (in the loosest of terms). Health insurance in nearly all other western countries is mandatory unless you are poor in which case its free. Many people in the UK do not have the opportunity to experience another countries healthcare system unless they are on holiday and end up having to use them so they are unaware as to how they work. The other question raised was about the real quality of healthcare, lowest quantity of scanners in Europe, old medicines, old treatments, this is because in the UK you are not aware of whats going on in other countries.

[Alan Zoff]

I didn't say you could "just blame the bankers", anymore than you should just blame the government. A lot of people have been at fault - banks, government, the public - in causing the credit crunch.

I would also have liked to see someone offering a wider view on the differences between Britain and Hong Kong. A multi-millionaire Chinese escapee who has made a fortune in the lightly-regulated colony is not necessarily impartial or typical of what all Brits could become in the UK. Any system tends to produce winners and losers.

The one thing that is clear from the figures, though, is that drastic action is needed as, despite Osborne's supposedly tough measures, the debt will go on increasing unless there is a more fundamental change in the way the country behaves. The problem is that turkeys won't vote for Christmas, which means politicians will continue to buy votes from people who aren't ready for change. The logical conclusion of that is change will only come when voters don't count, or no longer exist.

[Alan Zoff]

I am not generally a Guardian fan but I have just found this online, which pretty well sums up my concerns about the programme. Guardian haters get ready!

http://www.guardian.co.uk/tv-and-radio/2010/nov/12/britains-trillion-pound-horror-story-tv-review

[Braco]

To my mind the best programme I have seen in the last 30 years though with me they were preaching to the converted.

I knew thing where bad in the South East but never dreamed how bad they were elsewhere with the Northern Ireland economy 80%+ coming from taxation and loans..

The programme was dumbed down and repetitive but I felt this was needed to hammer home the scale of the problem.

Bringing the National Health Service into the spot light is also long overdue.

[Quillan]

Nothing wrong with that article at all. The only problem is that in some ways he has been proved correct. There are more global worming (sorry climate change) sceptics than before and as he pointed out at the time some of the information was wrong and has now been seen to be wrong, I'm not saying all of it just some of it. Likewise the one about GM food being good, well even 'the greens' have now said that in hindsight yes it is as it can save a lot of people from starving in poor countries. Likewise the green activists stopping the building of nuclear power stations in the US etc (forget which channel it was on) which would have reduced polution if they had gone ahead. So is he right this time, well we probably will never know but what is true is what the debt currently means, will the system he suggests get us out of it, well as I said we will never know because politicians are too busy spending the money they don't have to give it a go.

[crossy67]

Interesting watch, kept me at my pc for an hour and ten minutes.  The program seems to forget all about the US with little health care and massive capitalism and it's polarised society of massive haves and have nots.

[Gluestick]

Let's put some of this into perspective.

The value of residential housing stock was  61% of Britain's TOTAL asset base at end 2009: up from 55% in 2003/4.

In money that's £ 4.048 Billion.

Source:

"Detailed figures of the country’s wealth show that the most valuable

asset continued to be housing with a total value of £4,048 billion. This

was equivalent to 61 per cent of the nation’s wealth, and was up 3 per

cent on the previous year. The value of housing stock belonging to the

household and non-profit organisations sector was worth £3,827 billion."

Shows how since 1971, the British economy has been focused on  Booms-Busts caused by insane house price rises and cheap money.

More critically, in order to fund this mad extravaganza, much of the capital necessary to boost up notional value, has been imported from the global interbank market: and that capital in majority as now been repatriated. Peston described the resulting condition as Funding Overhang.

The reason that capital had to be imported was simply because Britain has failed, dismally, to throw off much new, fresh real wealth, from wealth making activity; like making things and exporting them.

No wonder than that Britain's Balance of Trade has been constantly in deficit and that deficit has, like Topsy, growed and growed!

Additionally, the unsecured credit market was allowed to zoom totally out of control; again, thanks to both slack money supply and even slacker credit regulation: most was used to purchase imported goods.

The so-called Credit Crunch was almost totally an American product: from Sub Prime debt, which has been "Securitised", i.e. packed up with other debt, sold to SIVs (Structured Investment Vehicles) bundled with credit guarantees (AIG et al) and sold off as investment class assets which carried triple A risk assessment from such as S & P.

The charade and pack of cards collapsed: and this placed all international financial institutions under huge borrowing stress: there usual source of funds, the global capital and interbank markets were closed and hugely risk averse, almost overnight.

This caused a knock-on effect for UK banks.

Traditionally, 85% ish of all new fresh capital in bourse centres comes from the little guy: Savings, pensions, investments, life assurance etc.

Same with building societies: savers deposit and the societies lent.

Britain and the USA particularly have the lowest personal savings to GDP ratios of ALL World states: which makes you think.

Thus the new sources of capital for financial markets have become global capital markets and particularly the global interbank market; and mostly Asia: since Asia's Tiger Economies have been the centres of most global industrial activity and exports and are thus sitting on vast Western currency balances. It is not rocket science!

It has been the final bleat of the so-called and erroneously described "Free market": a move to Libertarianism. Little or no government intervention. And naturally, the other favourite mantra that "Free Market Capitalism is the universal financial and economic panacea!"

In their dreams!

None of this stuff is new: it has been gathering pace towards its ultimate fiasco for ten years or more and I've been writing on such for at least as long and warning of the inevitable outcomes.

That said, now the effects are felt by all and sundry, every TV producer and director and journalist suddenly becomes an expert!

Bit like forecasting the winner of last year's Derby to me.........

[Www]

[AnOther]

My little pet theory is that the spark which ignited the property boom

was Maggie and the 'right to buy' but I shouldn't really criticise as

it's how we got a first and early foothold on the property ladder and

subsequently did extremely well out of thank you very much [;-)]

[Alan Zoff]

The banks have had to reintroduce lending restrictions to repair balance sheets, hence the drying up of easy mortgage loans.

What still needs to be done for sanity to return to the housing market and to allow first time purchasers back onto the property ladder is to reintroduce controlled tenancies and rents. But I can't see any government being brave enough to do the necessary - just as there are too many voters relying on state benefits, there are also too many who are keeping property prices out of the reach of young people by buying them up to let out at extortionate rents.

[Gluestick]

Interestingly, An, the first residential ownership boom was in the mid-1930s.

As the economy slowly recovered speculative developers piled in and started throwing up bijou estates of mainly what were called "Jerry Built" houses: this accelerated up until World War 2.

The second phase was the late 1960s: and this flowed through into the early 1970s: ably assisted by Heath-Barber, who operated a typical Tory boom, by slackening money and encouraging lending and speculation.

I was working at the time in the City money markets (new phenomenon then): it resulted in loads of huge speculative property empires crashing, such as Lion and Stern; the stock market was on its knees and highly leveraged (Borrowed) conglomerates which had taken cheap money to build an equity house of cards (Using the madly rising market to re-leverage for even more silly overpriced acquisitions) crashed to the floor. The most notable being Slater-Walker.

Proving the only lesson from history is we never learn from history, Thatcher-Lawson repeated this insanity; only bigger scale.

Blair-Brown simply emulated the two earlier Boom-Busts to create Brown's "Miracle Economy": however, this time around, since the B of E had been stripped of most of its regulatory powers (Which had been vested in a new, untried and untested authority, the FSA) and imposing financial strictures, such as the "Corset" (Special Deposits), was outside B of E's remit.

FSA, naturally, didn't bother; more probably, didn't understand in truth, what they were doing and more critically, not doing!

What made the last fiasco far far worse, was the reality that "Hard" Eddie George, then Gov. of the B of E, and the MPC etc, believed a recession was mounting in the early years of Blair's government; and slacked off base rates and the borrowing criteria they could still control, despite much concern, to "Stave off" the growing recession; George admitted that the MPC et al realised they might trip a house price boom and worse, a consumer credit binge. He admitted this to the Select Committee, tasked with investigating how successful B of E independence has been in March 2007, a short time before has passed away.

See here:

Perhaps if anything facilitated the 1970s boom it was endowment mortgages.

Previously, insurance linked mortgages were meant for professionals and higher earners; as they carried benefits of tax concessions. Plus they were a way of saving; but more expensive than a normal repayment mortgage. A straight endowment matured at the stated sum assured, plus annual and reversionary bonuses: thus the bonuses were, well a bonus. However the lender was assured by the assurer of 100% discharge of the capital sum borrowed.

The new whizzy concept was to exploit the "Expected" returns of the stock market: thus the borrower could take an endowment mortgage and confidently await the stock market to build up large gains to pay off the mortgage principal. The premiums were cheaper and thus more affordable.

In the early 1970s, of course, the stock market tanked; and many insurance and assurance companies were in deep trouble.

As we know this nice idea as with so many financial nice ideas went pear shaped.

What's new?

[Www]

[Alan Zoff]

Ah, endowment mortgages. That was a good one.

I remember trying to point out to a friend that the telephone number maturity figure he had been "promised" (subject to the statutory disclaimer) might not be achieved or if it was, then it probably would mean that inflation had got seriously out of hand, reducing its real value. He should keep in mind the risk that it might not make enough to pay off the mortgage.

He thought I was mad.

[Gluestick]

[quote user="Alan Zoff"]

The banks have had to reintroduce lending restrictions to repair balance sheets, hence the drying up of easy mortgage loans.[/quote]

One core reason the banks had to address their balance sheets, Alan was simply because of the silliness of Fractional Reserve Lending.

See here:

The first rule of banking is never to borrow short and lend long: i.e. borrow short term money; and then it out for a considerable time.

The ideal is "Matching": i.e. borrow ten years funds for ten year term loans.

Trouble with borrowing short and lending long is market conditions can (and invariably do!) move against your position: e.g. borrow at 5% and lend at 7%: and suddenly find you have to replace money you have lent at 7% at 10%!

This is what destroyed Continental Illinois in the 1980s; then arguably the tenth largest bank in the World.

See here:

[quote]What still needs to be done for sanity to return to the housing market and to allow first time purchasers back onto the property ladder is to reintroduce controlled tenancies and rents. But I can't see any government being brave enough to do the necessary - just as there are too many voters relying on state benefits, there are also too many who are keeping property prices out of the reach of young people by buying them up to let out at extortionate rents.

[/quote]

Hmmm.........

Thatcher relaxed rent controls to encourage property investors to build up portfolios of rent rolls in residential tenanted property.

Alongside forcing local authorities to sell stock via the Right to Buy: her government also favoured Housing Associations for provision of new stock, at market prices rental.

Prior to this, large residential rented property portfolios were liquidated or significantly slimmed down: London City and Westcliff as a good example.

The problem now is wages and salaries have not kept pace with house values: the old rule of 3.5 X Gross Annual income = average house price is far out of synch.

The last boom was only sort of affordable by lenders opening up criteria: silly tenor (length of loan), up to nearly 30 years: stupid LTVs (Loan to Value), interest base rates the lowest for nearly 50 years; and crazy mad income multiples.

With almost zero social housing starts from Local Authorities, rent controls would chase investors out of the market.

It has only been Buy 2 let landlords and housing associations who have kept the rental section from utterly imploding.

All that said, I do agree in principle: it is how to achieve it I struggle with!

[:)]

[pachapapa]

Continue to pay the mortgage in retirement!

No better your kids can contract the continuation of mortgage payments when one kicks the bucket, like the japanese.

[Alan Zoff]

My first job in the 70s was with a clearing bank. The guiding principle hammered home to us was that we had to match assets and liabilities like for like, subject to a tightly controlled margin.

Then along came Mrs T.

If only I had remained in banking. Everything could have been very different....

 

[Etoile]

I thought the programme was excellent, told an unpleasant truth with some easy to follow illustrations. The situation is depressing, but until we have a government who has the courage to empower ordinary people and reduce the dependency culture we will sink ever more into debt. Certainly the government should not run anything: It is only in the last ten years that one has heard members of the public openly criticise the National Health Service.

[brianagain]

Interesting and ironic to note that the five economic experts (Booth, Butler, Littlewood, Bartholomew and Bonner, all cheerleaders for free markets), not counting the presenter, are all employed in the service sector. That, in their owns eyes, makes them about much use to they economy as say, estate agents, etc. Perhaps they should all try the manufacturing sector, except I doubt they will hardly be paid as well as they currently are - Littlewood for example is on a six figure salary at the IEA. Further irony; the show was even broadcast on a (part) publicly funded TV channel! 

I like the comment someone else made about the programme...  "further deregulation of the private sector is like asking the iceberg to fix the Titanic".

Brian (again)

[Théière]

And the Chinese have lots of lovely money, when you go to buy manufactured goods there is that little sticker on the bottom "Made in China" The paper pushers who have killed off so much of our production have really got us into this mess. With all the high level economists sitting on their fat arses, how could they possibly have got into this mess?