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Death by debt or what we are not being told by our government and MSM.

Chris Martenson has an excellent post up on his blog explaining why the world is currently in such a financial pickle and why it will most likely end in “death by debt” for money in its current form which requires an ever increasing issuance of debt to function.

The article is very accessible and I would suggest reading in full to appreciate the argument being made there.

One thing that struck me from the article and which I wanted to drag out here is just what the situation is with UK debt.

If we listen to the politicians (of whatever colour) and our wonderful media, everything is fine and we must endure a little short term pain before we get through our troubles to the golden future of rainbows and unicorns (or something like that depending on who you listen to).

The BBC, for example, had this piece on UK debt in 2009 when the government debt levels were first being forecast to reach 100% of GDP :

This year, the UK government’s debt as a percentage of its overall economic output will hit almost 70%, according to the International Monetary Fund (IMF).

No wonder leading credit ratings agencies have expressed concern and suggested the UK’s AAA rating – reserved for only the very safest borrowers – is under threat, sparking widespread hysteria in the media that UK debt is spiralling out of control.

Reading some headlines, you might even be forgiven for thinking UK plc is on the verge of going bust.

But are the UK’s debt levels really that bad when compared with other leading developed economies?

The chart below will tell you that, in fact, the UK has the lowest level of debt of all the leading developed economies of the world. Its 68.7% of GDP compares favourably with the US (84.8%), Italy (115.8%) and Japan (218.6%) in particular.

“When you look at other countries’ debt, it is unfair [to pick out the UK],” says Vicky Redwood, UK economist at Capital Economics.

Whilst not the best position to be in you could conclude from the graph and article that all is well, not just with the UK but most of the rest of the developed world as well.

The problem there though is that the focus is purely on government debt and not the total debt of government, business, personal and, most importantly in our case, financial institutions.

From Chris Martensons article :

When all of the most indebted countries are stacked up, we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically.

Even though the data is from the same year as the BBC article, it paints a very different picture of the UK position in the world as business and household debt overhanging from the Brown Bubble years as well as the financial institution debt take us right up there in pariah status just behind Japan.

You will note on the graph the 260% of GDP line which is there for a very specific purpose and one that may surprise you :

Note: 260% debt-to-GDP is the all time record for repayment, accomplished by England between 1815 and 1900, but required both massive cuts in spending and an industrial revolution.

We once managed 260% debt to GDP repayment (over 85 years mind) with the benefit of our huge industrial expansion, empire receipts and a lot of cost cutting.

Today, at 466% debt to GDP we have bugger all manufacturing, bugger all growth prospects and increasing government spending (contrary to what we are consistently told by the BBC and other MSM outlets).

Without mincing words, the world does not face a crisis of liquidity, nor a crisis of insufficient debt, but one of entirely too much debt.  That’s the entire predicament in three words:  too much debt.

More debt is only going to compound the predicament, yet that is what the world’s central banks and political structures are busy manufacturing.  More debt.

Of course, debt is only one component of the story; there are also liabilities to consider.  The above chart merely graphs the legally defined debts involved.  If we bother to add back in the liability components, which are pensions, social security and government medical plans, the predicament is seen to be three to six times larger.

Which for the UK includes a massive unfunded pension liability, PFI contracts and a whole host of other “off balance sheet” contrivances designed to keep the headline numbers at palatable levels.

Where are we heading?

I don’t think anyone really knows the answer to that but as it currently stand with the continued game of kicking the can down the road in the forlorn hope that everything will be allright in the end I am sure it will not be pretty.

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