As the brinkmanship in Washington continues the UK is beginning to wake up to the fact that the biggest crisis of all is now in the making and may, or may not, be averted. It is this blog’s view that so much money is owed by so many to each other that sooner or later there will have to be a general default and a fresh start for the Western economies.
This is how it works. Britain, like other countries, buys foreign debt. The total owed to us by the US is $350 billion. The total owed to us by the troubled Euro Zone economies of Greece, Ireland, Spain, Portugal and Italy put together is $418 billion. In other words the UK has an investment of $768 billion collectively in these troubled economies. If this starts to go bad and we start to be hit by losses, at some point we will have to adjust what we can pay to others on money we owe them. And so on it goes, because everyone is on the merry-go-round and when it starts to spin, all spin together.
The alternative if that the western economies struggle on, weighed down by debt, unable properly to grow, with their populations becoming increasingly restive as they peer into an opaque future from ever lengthening dole queues. The situation is made more dangerous because neither the Euro Zone nor the U.S. has any kind of coherent plan to bring its house into order. It must be said that the Euro governments have woken up at last to the deficiencies in their currency’s structure and they are beginning at least to work on it. In America there is no plan from either side that goes anywhere near resolving long term structural issues. It may be that, as in the credit crunch, it is in the highly stressed US part of the whole system’s fragile structure, where the rivets first start to pop.