Britain a Big Version of Iceland? Bankrupt Britain Trending Towards Hyper-Inflation?

Britain a Big Version of Iceland? Bankrupt Britain Trending Towards Hyper-Inflation?

by Nadeem Walayat

Global Research, November 30, 2008
Market Oracle - 2008-11-28

The mainstream media is increasingly full of stories of either Britain going bankrupt or the coming deflation associated with the recession. Whilst both are now obvious given the economic data and government actions however what is missing from the headlines is that under the weight of the exploding public sector debt mountain, deflation will fast turn towards hyper-inflation as the government literally prints money in ever more panic measures aimed at turning the economy around. Many of the readers of my articles over the last year at Market Oracle will have seen this trend unfold as sustainable amounts of borrowing exploded into unsustainable liabilities due to the collapse of the bankrupt banks. Therefore this article seeks to analyse how Britain has come to towards an increased risk of bankruptcy and what action can be taken to avoid a currency collapse that is the consequences of state bankruptcy.

Britain’s Debt Problem Explained

Unfunded Pension Liabilities

Whilst private sectors pensions are determined by what the market will pay at retirement on the basis of the pension fund values and annuity rates, the tax payer picks up the tab for public sector worker pensions that receive up to 2/3rds of final salaries. The public sector has no growing pension fund which means public sector pensions are paid out of the current contributions with the shortfall made up by the tax payer, which has resulted in a huge pensions time bomb that is estimated at a liability of £996 billion and growing, as more public sector workers retire into longer retirements, so will the gap between contributions and pension payments widen which will result in a pensions time bomb exploding that will hit tax payers hard and act as an annual public sector pensions tax on tax payers.

Public Sector Net Debt

The official debt levels as recorded by the Office of National Statistics estimates how much the country owes. This currently stands at £624 for 2008 up from £534 at the end of 2007 and projected to rise to £944 billion by the end of 2010 as the gap widens between government spending and revenues as the countries GDP contracts, and the revenues from the booming financial sector evaporate into thin air. The situation has now been made worse by the £20 billion tax cut.

Northern Rock Nationalisation

The estimated exposure at the end of 2007 was £40 billion, however by the end of 2008 this will have risen to £90 billion following the banks nationalisation and ongoing housing market crash.

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