Is the UK facing its own Greek (debt) tragedy?

16th June 2011

Tullet Prebon has produced a report that claims the UK government is "probably deluding itself when it imagines that it can solve the UK debt problem by relying on increasing growth".

Tullet Prebon's report is highlighted by the campaigning website Sodium Haze. It has summarised Tullet's report as follows.

Firstly the report says: "Short-term growth is unlikely for a number of reasons:

1.   Government and private spending over the last ten years has been funded by an increased element of debt.

2.   Increased spending has not led to a sustainable growth.

3.   Government spending has not been on ‘self-liquidating' (stuff that pays for itself) projects but on more healthcare, education and defence (stuff that just costs).

4.   Private spending of debt money has been on mortgages and consumerism – stuff like TV's, cars, holidays and iPhones just cost money and ‘investment' in property now increasingly looks like a big Ponzi scheme with the full downside yet to emerge.

Sodium Haze goes on: "The report says that the prospects for 58% of the economy are poor because they have been built on public and private spending of debt money. Indeed private debt is forecast to rise to £2.1 trillion by 2015."

The Tullet report says that because private individuals are unwilling to take on any more debt and the government is trying to reduce its annual budgetary deficit – there will be no money to grow large sectors of the economy including financial services, construction, real estate, public services.

As private investment falls and with no-growth industries such as health education and public administration and defence account for 58% of the economy, growth may become impossible.

Tullet Prebon concludes that since the coalition government's strategy to clear the UK debt problem relies on at least moderate growth – then it is likely that it will not work. 

Sodium Haze said its interpretation of the report is that the UK has spent too much debt money on consumerism and public services and not enough on income generation.

Resolving the situation involves a long-term approach.

Instead of lending money into situations that promise the quickest short-term profit – mortgages, credit cards, personal loans and equity releases –  banks need to help the manufacturing sector.

Sodium Haze concludes that the only way we will solve this debt disaster is to return to 100% reserve requirements for banks – and for money to be spent into the economy by a duly elected government without interest rather than loaned into existence by private banks with interest."

If we don't tackle this problem with our money supply – we have no hope of rescuing the UK economy and even less hope of dealing with the onrushing calamities of climate change and peak oil.

Tullet in its own conclusion adds "If this doesn't happen – and we are convinced that it can't – the deficit reduction plan will come apart at the seams. 

Scary stuff, but is the UK's economy as stuffed as these commentators believe it is, have your say below.

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