Skip to comments.If You Live In Britain, All Your Savings Belong To Debt (Not a Wealthy Nation Anymore)
Posted on 02/14/2012 6:54:12 AM PST by SeekAndFind
The great myth of the last few decades is that people can establish sustainable savings by investing in other people’s debt. That is how relatively astute and candid writers, such as Jeremy Warner for the Telegraph, can claim that “Britain is still a hugely wealthy nation” and actually mean it. In his latest blog post, Warner tries to convince us that aggregate private debt in Britain is not so bad when we factor in “assets” as well.
From his piece:
Believe it or not, Britain is still a hugely wealthy nation
Last week I drew attention to a report by Royal Bank of Scotland, which argued that we were only about a third of the way through the process of household deleveraging – that is the reduction relative to income in household debt – and that continued adjustment in this regard would act as a significant drag on domestic demand for many years to come.
Well here's the other side of the coin. Yes, household debt relative to income rose to unprecedented levels just before the bust and remains way above what RBS considers "sustainable". Yet the point that is frequently forgotten is the asset side of the balance sheet, which as can be seen from the Office for Budget Responsibility table below, remains far in excess of the debt.
The physical assets alone (mainly housing) were last year worth 382pc of income. Add in financial assets such as pensions and other forms of saving, and the figure rises to 827pc of income, an excess over the debt of 667pc.
(Excerpt) Read more at businessinsider.com ...
All they need is another trillion dollar stimulus package!
I looked at a recent breakdown of spending in the US. Defense spending as a percentage of GDP. We're down to 3% and Obama wants to cut more. The elephant in the room is servicing the debt. After debt service and entitlements, there just isn't much left of the tax revenue stream. A small move in the interest rates on the debt could drive up debt service costs so high that nothing remains for entitlement or defense.