Forget all the Euro News – Ben Davies of Hinde Capital says it is the UK that has its ‘Eyes Wide Shut’

With all the current focus of late being on the all the Euro News that various European countries are at different stages of insolvency, Ben Davies of Hinde Capital reminds everyone that there is the little problem of the UK to think about.

In Davies’ rather ominous sounding report, “Eyes wide shut – the UK hitting the wall”, it brings to readers attention the ‘gravity of the situation that the UK finds itself in’. From the report:

The ‘naughties’ was a decade of growth, but this growth was not real. It was not a growth borne out of production from savings, but it was a false growth borne out of rising debt levels. The UK’s seeming prosperity was, and still is, an illusion.

The UK experienced a credit-fuelled boom predicated on escalating private sector borrowing drawn primarily out of the equity of rising house prices. The tax revenues this spawned allowed the Labour government to grow the hand of the State, leading to an unsustainable growth in public sector debt.

Money was not earned, it was borrowed and spent on fancy clothes, smart cars and endless electronic devices whose fads changed by the hour. The rise in public sector employment as a share of the UK economy not only helped reinforce this debt binge, as the new gainfully employed enjoyed the fruits of their labour, but it no doubt did not harm New Labour’s re-election potential. A prosperous electorate, after all, is a happy electorate.

As dreary as it is to rehash the point that we have too much debt, (I hear you yawning), it does not negate the reality that the UK has not managed to deleverage its burdens some 4 years since the ‘Great Financial Crisis’ begun. This reality has very grave implications for the UK economy and its people.

[emphasis ours]

All quite obvious points, but ones that we’ve become so immune to that we hardly take any notice just how serious a statement like ‘The UK’s seeming prosperity was, and still is, an illusion is in reality.

Ben Davies then goes on to make the point that we’ve been saying for two years now – namely that any talk of ‘austerity’ in the UK is just that, talk. The actual numbers don’t show a shrinking public sector but rather one that is increasing in size – Tories adding 30+% onto the national debt since they came to power anyone?

If growth will continue to be worryingly absent then so the UK will have structural tax problems. As each year passes, not only does the cyclical fiscal deficit grow worse but the structural primary deficit threatens to rise exponentially. Public sector finances are not rebalancing. In fact, as we will show the public sector net borrowing requirement (PSNBR) is continuing to grow despite the Coalition government’s promises of austerity.

[emphasis ours]

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Davies then finishes by reminding readers where this all will inevitably end:

There is an ever present and real danger that the debts of the UK will not be tolerated by financial participants. The UK faces a very significant debt issue which threatens to become a full blown sterling crisis. This is clearly not an eventuality that markets are currently assigning any probability.

[emphasis ours]

The entire detailed report is a must read (read part 1 here and part 2 here) for anyone with even a passing interested about what is happening in the UK. It is certainly is a timely reminder that problems at home in the UK are just as dire as they are on the European continent – invest accordingly.


Link to this article: : http://www.goldmadesimplenews.com/gold/forget-euro-news-ben-davies-hinde-capital-says-uk-eyes-wide-shut-7189/

Posted by on Jun 27 2012. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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