- Ten-year growth based on borrowing not productivity
- UK manufacturing sector is weak
A BBC report says economic storms facing UK people will be worse than previously admitted says Treasury Secretary Alistair Darling.
His 30 August 2008 admission contradicted his own claims that the ‘UK’s strong economy’ can weather the financial storms.
Shares dipped after his warning and commentators attacked him for “talking down the economy”.
Yet, PR professional, Simon Hinds, who predicted a depression three years ago, commented: “Alistair Darling clearly knew the consequences of his admission. So, the only reason he did it is because the real situation is that the UK is faced with not a short recession but rather a new ‘great depression’ that could last ten years.”
Problem: borrowing rather than growing
The roots of the problem that is unique to the UK is Gordon Brown’s decision in 1997 to make the Bank of England independent.
Simon Hinds explained: “The Bank of England is not a government agency. It is a private bank under Government regulation. It has been a private company since its inception in 1694 but was ‘nationalised’ in 1946.
“Nationalisation wasn’t what we think of, it meant that its shares were held ‘in trust’ by a government official, the Treasury Solicitor.”
Making the Bank independent meant that the group of investment houses that it depends on could make profits from other banks by allowing them to let borrowing rip.
Bank of England figures show that UK private lending to businesses and individuals rocketed after Labour was elected. From £100bn in June 1997, it went to £400bn in June 2007.
In the previous twenty years, it had risen by only £100bn. This influx of money was spent in the high street but it also created bubbles in housing and shares. So, by the end of 2007 personal debt hit £1.35 trillion – more than the June 2007 gross domestic product of £1.34 trillion. Most of this debt has been secured and on mortgages and the rest is on credit cards and other loans.
In September 2006, money experts, Datamonitors, calculated that an average UK person had £3,175 in unsecured debt, excluding mortgages – double that of the rest of western Europe.
Small manufacturing sector means imports
The consumers spend their money on imports. The Office for National Statistics recorded a £22.7bn deficit in trade in goods for the first quarter of this year and £8.4bn deficit overall.
The 2007 deficit in goods was £89.5bn and overall it was £59.7bn. Services and particularly financial services are preventing the poor Balance of Payment figures from getting worse. In 2007, trade in services had a surplus of £38.3bn. Consumers have spent on cheap Chinese goods that have also helped to keep the inflation rate down.
Now, the financial sector is taking a hit.
Deteriorating Balance of Payments will mean a continuing decline of the value of Sterling and therefore an increase in costs of imported goods. (The upside is that goods exported are also cheaper.) UK manufacturing has not become more efficient or productive. After World War II, manufacturing was 40% of the UK economy.
Today, it is around 20% of the economy. Investment in manufacturing as a percentage of total investment has dropped from 22% in 1992 to 17% in 2000.
If the financial sector is taking a hit and there is not much industry, then the UK economy is not in a strong position.
Simon Hinds commented: “My information is that the US financial sector will collapse after the Presidential elections. “This will lead to sharp increases in interest rates around the world and particularly in the UK and a global depression.
“Instead of a 60-year economic downturn, what is more likely is that it will be worse than the Great Depression.
“People in work will still spend money. And business people will need marketing and communications to ensure that they get to potential customers.
“But on a personal level, one means of insuring yourself is gold and silver. Over time they are likely to increase in value as currencies decrease, particularly Sterling and the US dollar.”
- Darling warns of economic crisis, http://news.bbc.co.uk/1/hi/7589291.stm
- Balance of payments, 4th quarter and annual 2007, http://www.ons.gov.uk/ons/rel/bop/balance-of-payments/4th-quarter-and-annual-2007/balance-of-payments—q4-2007.pdf
- The facts about UK manufacturing, http://news.bbc.co.uk/1/hi/business/1861801.stm Moneyweek, 10 October 2007, ‘How mortgage banks magically create money‘, http://www.moneyweek.com/file/36187/how-mortgage-banks-magically-create-money.html
- The Independent, ‘For the first time, Britons’ personal debt exceeds Britain’s GDP‘, http://www.independent.co.uk/money/loans-credit/for-the-first-time-britons-personal-debt-exceeds-britains-gdp-462825.html
- Business Scotsman, ‘UK personal debt twice that in rest of Europe’, http://business.scotsman.com/consumerdebt/UK-personal-debt-twice-that.2814187.jp