If The UK Goes Down, We All Go Down

[Admiral Valdemar]

Obama's about to get his big test. My favourite observer on all things economic:

SERIOUSLY ALARMED

Posted By: Ambrose Evans-Pritchard at Jan 20, 2009 at 14:17:08 [General]
Posted in: Business
Tags: Bank bail-out, currency crisis, deficit, financial crisis, pound, recession

The slide in sterling has turned "disorderly".

We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel.

For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.

The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.

The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn. (on this, more later in a piece I'm writing today)

If the Government is forced to nationalise RBS and perhaps Barclays with their vast exposure in dollars, euros, and yen, it risks being submerged. It is one thing for a sovereign state to let its national debt jump in a crisis -- or a war -- perhaps even to 100pc of GDP. It is another to take on foreign debts on such a scale with no reserves. Yes, the banks have foreign assets as well to match the debts. But how much are these assets really worth?

This is the moment when the "rubber hits the road" -- to borrow from American argot -- the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.

We cannot even do what Iceland did to save its skin. Reykjavik refused to honour the foreign debts of its buccaneering banks. It let them default, parking the losses in Resolution Committees. Small islands can do that. Iceland has fish instead, and lots of metals.

Britain cannot follow suit. The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.

What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster.

England has not defaulted since the Middle Ages. There is a real risk it may do so now.

And no -- just so there is no misuderstanding [sic] -- it would not have been any better if Britain had joined the euro ten years ago. The bubble would have been just as bad, or worse, as Ireland and Spain can attest. We have our disaster. They have their disaster. When the dust has settled in five years we can make a proper judgement on the sterling-EMU issue. Not now.

The Baby Boomers have had their moment in power. The most spoilt generation in history has handled affairs with its characteristic hedonism. The results are coming in.

The blithering idiots.

Consider what Lehman's collapse did to the world as a whole, initiating this more aggressive phase of downturn since September that created the impetus for multi-billion (now trillion) dollar bailouts the world over. Now what do you think the world's financial hub imploding would do, when a single major bank on Wall Street set these dominoes in action? It's scary how this is unfolding now, and this is really the first proper piece on the economy I've read in a couple of weeks given my New Year's resolution of trying to be more optimistic. After all the hope from Obama's day in the limelight just gone, he won't even get a few weeks of grace.

[B5B7]

The Baby Boomers have had their moment in power. The most spoilt generation in history has handled affairs with its characteristic hedonism. The results are coming in.

Referring to Generation X? It's badly worded to make it seem like the BBs.
Should have inserted between first and second sentences "But now Gen X has control of financial affairs."

[Chris OFarrell]

No, I think he's pointing out that the Baby Boomers have fucked up a rather large amount of shit over their years, worshiping at the alter of unsustainable growth and now Gen X/Y have to pay the price.

[J]

It's not looking good. Generally speaking, it's not a good thing when the CDS for a country's debt gets into the triple digits, that's something which is more often seen in countries with shaky economies such as the east European countries or Russia. It's something you really don't want to see in a first world country and certainly not a financial hub such as the UK.

If they go kablooie, yeah, it's really going to suck. Nevermind the domino effect, just imagine the sheer panic that'll result from the UK's financial system imploding, there'll be brown pants in every bank & stock exchange on earth.

[B5B7]

No, I think he's pointing out that the Baby Boomers have fucked up a rather large amount of shit over their years, worshiping at the alter of unsustainable growth and now Gen X/Y have to pay the price.

I should have put some appropriate smilies. I know he was trying to blame the BBs, but I am saying it is Gen X that was the big offenders - they had the spoilt upbringing [could perhaps blame the BBs for spoiling them. ].
Perhaps though we should really be blaming specific individuals or groups, not whole blanket generations.

[Coyote]

BTW, will there be a divorce settlement between England and Scotland? What will that do?

[Ender]

No, I think he's pointing out that the Baby Boomers have fucked up a rather large amount of shit over their years, worshiping at the alter of unsustainable growth and now Gen X/Y have to pay the price.

I should have put some appropriate smilies. I know he was trying to blame the BBs, but I am saying it is Gen X that was the big offenders - they had the spoilt upbringing [could perhaps blame the BBs for spoiling them. ].
Perhaps though we should really be blaming specific individuals or groups, not whole blanket generations.

I'm trying to figure out if you don't know what a generation is, don't know which generation constitutes the Baby Boomers, or are desperately trying to blame any group other than the one that fucked it all up, which was the Baby Boomers. They are still in charge and they are the ones who fucked this up (with Regean being a member of the Greatest Generation who led the charge)

[Guardsman Bass]

BTW, will there be a divorce settlement between England and Scotland? What will that do?

Scotland would probably have to pay higher taxes to keep the same type of services they're getting under the current UK government, although it depends on how North Sea revenue is proportioned (plus other factors unforeseen, like the cost of opening embassies and so forth, and the efforts of an economic slump on the amount collected in taxes). This is part of a report on Scotland's expenditures and revenues for 2006-2007 (I can't seem to find a more recent one on the Scottish Government website).

[B5B7]

No, I think he's pointing out that the Baby Boomers have fucked up a rather large amount of shit over their years, worshiping at the alter of unsustainable growth and now Gen X/Y have to pay the price.

I should have put some appropriate smilies. I know he was trying to blame the BBs, but I am saying it is Gen X that was the big offenders - they had the spoilt upbringing [could perhaps blame the BBs for spoiling them. ].
Perhaps though we should really be blaming specific individuals or groups, not whole blanket generations.

I'm trying to figure out if you don't know what a generation is, don't know which generation constitutes the Baby Boomers, or are desperately trying to blame any group other than the one that fucked it all up, which was the Baby Boomers. They are still in charge and they are the ones who fucked this up (with Regean being a member of the Greatest Generation who led the charge)

I am very well aware of what the generations are. Make up your mind, is it the GG or the BB to blame, according to you? This hypothesis that the BB caused the current mess (which I have only ever encountered in a few posts on SDn) is hardly sustainable - unless you can provide contrary evidence?
Each generation has inherited good and bad things from prior generations. The X & Y generations are the most privileged in history. It is time they accept some of the responsibility for the current state of the world. This does not abrogate any responsibility from the BBs however - George W. Bush anyone?

[Admiral Valdemar]

Why should my generation, who are already paying for this exorbitant materialist phase, share the blame when the BBs were the ones who, after WWII, set about the reckless growth without limits paradigm? We man have been the children of those just wishing a better life than they had in the last era that ended in war and depression, but they've only gone and mortgaged our futures and that of the planet's for the sake of producing spoilt brats.

To answer another point, I don't see Scotland coping without Whitehall's input from taxes in England and Wales, given the North Sea's best days are behind it and manufacturing is not as it was as has been the case in all Western nations. The likes of free university and prescription drugs would have to be done away with for starters.

[The Guid]

Sorry, I may have just not got this but are you blaming generation X because as children they recieved a greater amount of luxuries because their BB parents bought it for them?

Maybe it would be better to define a generation. Personally I think the BBs do have to take the brunt of the blame for this one - its their generation that is in power right now, it is that generation that has bought property left, right and centre and it is that generation that elected in stupid tossers like Raegan and Thatcher. The generation that is now my age and just reaching adulthood, and I can't believe I have to say this, IS JUST REACHING ADULTHOOD, what the feck were they meant to do about it? They couldn't even fucking vote.

[mr friendly guy]

According to wiki, Generation x is those born from 1965 -1979, and Generation Y are those born 1980-2000. This would just put me into generation Y. Those prior to it are the Baby Boomers and Generation Jones (which I confess I never heard of before, and usually just assigned these members into the BBs section).

So you would expect those who made the decisions would be mainly in the baby boomers. You might be able to blame some of Gen X for buying multiple houses, multiple things etc, and helping Western economies getting into debt, particularly the older Gen X's.

While Gen Y does spend a lot (relative to previous generations when they were the same age, so says Australian 60 minutes), I find it hard to believe they have gotten into that much debt simply because they haven't had time. I don't see many Gen Y people buying multiple houses to the hilt and then blaming everyone but themselves for over stretching.

[bobalot]

Britain has basically been living on debt since Thatcher. Thatcher and Reagan supposed economic miracles were simply supported by massive debt. Encouraging oversized financial sectors that in reality didn't actually add much value like a factory does to raw materials.

In order to make up for the fact that finance has never been much of a value-added industry with great margins[*], they increased volume to maximize revenue (much like a retail store does). They borrowed more and more and leveraged themselves to the hilt to maximize revenue. Eventually it all had to come crashing down.

The problem with the UK and the US, is that they have barely anything to fall back on. High interest rates in the eighties and and a disdain for manufacturing led to the collapse of both their manufacturing industries. Mining is gone from England. Thatcher managed to single handedly create a underclass that exists in England to this day. Other than financial bullshit, what do these countries have to create income with? I think it's unavoidable that the UK is going down, I think it will be long slow and painful. Kind of like Japan during its lost decade, except without its manufacturing industries to fall back on.

[*] Think about it, they borrow from other banks, countries, and technically from their depositors at one interest rate and lend to individuals and companies at a higher interest rate. They profit off the margin in the middle after costs. How can this sector supposedly account for 40% of the U.S economy (And I suspect a similar share of the UK economy)? How can this middle man industry take such a large share? It's obvious now, it couldn't. It was based on bullshit and bad debt.

[B5B7]

Why should my generation, who are already paying for this exorbitant materialist phase, share the blame when the BBs were the ones who, after WWII, set about the reckless growth without limits paradigm? We man have been the children of those just wishing a better life than they had in the last era that ended in war and depression, but they've only gone and mortgaged our futures and that of the planet's for the sake of producing spoilt brats.

To answer another point, I don't see Scotland coping without Whitehall's input from taxes in England and Wales, given the North Sea's best days are behind it and manufacturing is not as it was as has been the case in all Western nations. The likes of free university and prescription drugs would have to be done away with for starters.

So, now you are blaming children, embryos and pre-embryos for events straight after WWII? You are the one Ender should have asked if they knew what the generations are.
Those born in 1965 are now 43 years old - I think they have had the vote for quite a while now. They are the generation that has produced the "financial wizards".

Mustn't be cruel to you poor babies ie Gen X & Y.
Is there going to be just humorous assertions in this thread, or some series statements? It is not generation X, Y, Z, or indeed BBs to blame - it is individuals to blame, and who should accept responsibility. If a 25 year old man committed a rape would you blame every 25 year old?
Strangely enough, although I appear to be supporting/defending an older generation, I quite often am annoyed by generalised attacks on the young in the media. However, in this thread this same over-generalising tactic is being used vs BBs. It is not worthy of SDn - you are better than this.

[Big Orange]

The sky is falling! The sky is falling! I get the sneaking impression Admiral Valdemar is addicted to the increasing and deepening economic carnage, although to be fair Britain's economy completely bottoming out will inevitably void out all the shit that directly caused it in the first place and we can get people in who can set things back to basic again to grow a real economy, although there is a danger that this economic depression could make a British Castro or Mussolini (who'll not introduce a new democracy, while making ethnic minorities and foreign labourers into easy scapegoats for the sunk economy).

[Gigaliel]

So, now you are blaming children, embryos and pre-embryos for events straight after WWII? You are the one Ender should have asked if they knew what the generations are.
Those born in 1965 are now 43 years old - I think they have had the vote for quite a while now. They are the generation that has produced the "financial wizards".

I will consider Baby Boomers 1943-60 for this exercise.

Since everyone seems to agree Reagan started this, let's see who voted for him
In 1980 Baby Boomers would be 20-37
Roper Center

18-21 (6% of voters)
Reagan: 44
Carter: 45
Anderson: 11

22-29 (17%)
Reagan: 44
Carter: 44
Anderson: 11

30-44 (31%)
Reagan: 55
Carter: 38
Anderson: 7

45-59 (23%)
Reagan: 55
Carter: 39
Anderson: 6

60+ (18%)
Reagan: 55
Carter: 41
Anderson: 4

Bias in favor of older boomers, younger people favor Carter. The Greatest Generation favors equally with boomers.

And Mondale, pay attention to 24-41. Also note the age brackets changed.

18-24 (11% of voters)
Reagan: 61
Mondale: 39

25-29 (12%)
Reagan: 57
Mondale: 43

30-49 (34%)
Reagan: 58
Mondale: 42

50-64 (23%)
Reagan: 61
Mondale: 39

65+ (19%)
Reagan: 64
Mondale: 36

Reagan is very popular and the Boomers come in second after Gen X, strangely. Again, Greatest Generation thought he was awesome.

So Gen X isn't exactly free of blame, but the bulk of Reagan's support was definitely BB/GG. I'm not really sure how to measure this phenomenon among Gen X as H.W. Bush, Clinton, and W. Bush didn't really run on such platforms, although they continued such policies.

Mustn't be cruel to you poor babies ie Gen X & Y.
Is there going to be just humorous assertions in this thread, or some series statements? It is not generation X, Y, Z, or indeed BBs to blame - it is individuals to blame, and who should accept responsibility. If a 25 year old man committed a rape would you blame every 25 year old?
Strangely enough, although I appear to be supporting/defending an older generation, I quite often am annoyed by generalised attacks on the young in the media. However, in this thread this same over-generalising tactic is being used vs BBs. It is not worthy of SDn - you are better than this.

Do you even know how generalizations or statistics work? Young men are much more likely to be criminals, Baby Boomers (as the Greatest Generation is dying off) are more likely to support Reaganomics/mortgaging the future/omnomnom/etc and now they are running the countries of the Anglosphere*. Not a complicated concept.

*I don't really know if the same generational patterns apply to Western Europe, so feel free to correct me. Also, incoming pretentious word.

[B5B7]

Yes, I know how generalizations and statistics work; they're great when used appropriately. But remember, there's lies, damned lies and statistics.
Bush could never have been elected without substantial support from Generations X and Y. Obama couldn't have been elected without substantial support from the baby boomers. And obviously the reverse situations also apply.
This is because there are more significant divides than those of different generations - there are things like liberal/reactionary, city/rural, etc.

If say 60-70% of a "group" did bad thing, can't blame 100% of the group.
If a bad thing happens, can't blame it 100% on one random group.
Extremely artificial grouping is being used if simply group by age. Could use allsorts of other selection criteria. Hitler was evil therefore Roosevelt also evil as similar age.
Here's a statistic for you - every expert astrophysicist I asked today agreed the sun would nova tomorrow.

What is funny about the claims in this thread are that the BBs were only young people when they allegedly were so bad; yet BBs are now older, and there is a new batch of young people, and so if it is young people who are responsible for the bad, then it must now be those of Gen X & Y.

[The Guid]

I'll apologise for generalised attacks on the Baby Boomers and Generation X (as they have now been defined for me). It IS stupid to do so, I admit it. And if I am honest my own generation would have done the same, and probably will, they just haven't had the chance yet. Every generation is based on the same level of self interest and selflessness. They're just humans.

Still, it would be nice to have someone to blame other than the usuals.

[Edi]

What is funny about the claims in this thread are that the BBs were only young people when they allegedly were so bad; yet BBs are now older, and there is a new batch of young people, and so if it is young people who are responsible for the bad, then it must now be those of Gen X & Y.

Show me the quotes where these claims are made or retract, because you're peddling a fallacy here. The baby boomers were young in the 1960s, they grew up in the postwar environment where industry and everything else was booming and when they got a little older and went to politics and got elected to office, they went on as if that was going to last forever and as if there was going to be unlimited growth. They have been in power for roughly the past 40 years, and it has been during that time that the decisions were made that led to the current economic shitstorm. So yes, it is the baby boomers' fault.

This does not mean that the older people in my generation (I was born in 1976, so gen X) aren't also responsible, as some of them are also in charge of stuff today, but back when the greatest foundations for current troubles were laid, they were not, as that was in the 1980s.

Gen X and Gen Y may have learned a shitload of bad habits from the baby boomers that now make it harder to start fixing things, but it does not alter the fact that the baby boomers were in charge of the bad decisions, which makes it their fault. Your bullshit paragraph there does not show cause and effect at all and is a non sequitur.

[B5B7]

Some clarification: Valdemar, Ender and Guid, are saying that a specific age group are mainly/almost solely responsible for the evil in the world today [incidentally, it's not really an age group but a wave]. SO:
Claim: those in their 50s and 60s are responsible for the evil in today's world.
Corollary: in 20 years time, those in their 50s and 60s are those known as Gen X, so in 2028 it will be Gen X mainly/solely responsible for the evil in that world.

Edit: Guid - aplology accepted.
Edi - you say BBs have been in power for 40 years - that means when the oldest ones were in their 20s - so saying that for some strange reason those in 20s, 20 or 30 or 40 years later are not responsible in any way, but those in their 20s 40 or 30 years ago were. That's great.

[Gigaliel]

Yes, I know how generalizations and statistics work; they're great when used appropriately. But remember, there's lies, damned lies and statistics.
Bush could never have been elected without substantial support from Generations X and Y. Obama couldn't have been elected without substantial support from the baby boomers. And obviously the reverse situations also apply.
This is because there are more significant divides than those of different generations - there are things like liberal/reactionary, city/rural, etc.

But saying everyone in rural or city areas vote a certain way is a generalization. Durrr.

And don't be stupid. 2000 was very close on all age brackets but 2004(44-61) had a clearer Boomer+Late Gen X vs. Everyone else. Honestly I'm not sure about Gen X not being responsible for the current problems or that issue doesn't follow the generational divides I used.

I'd find 2008 but Google is still awash with old election coverage.

If say 60-70% of a "group" did bad thing, can't blame 100% of the group.
If a bad thing happens, can't blame it 100% on one random group.
Extremely artificial grouping is being used if simply group by age. Could use allsorts of other selection criteria. Hitler was evil therefore Roosevelt also evil as similar age.
Here's a statistic for you - every expert astrophysicist I asked today agreed the sun would nova tomorrow.

You know, I saw a forum once with an emoticon that was an animated gif of that scene from Scanners where the guy's head explodes. That is the feeling I have right now.

Read a book on statistics. There are these things called "random selection" and "math" that have taken these objections into account.

We are not talking about other classifications, we are talking about the generational hypothesis and seeing if it holds. Not to mention it is limited to the U.S. where, oh hey, presumably there is more common cultural trends than fucking Germany.

Also it is a valid generalization if I say "By being a member of some generation, you are more likely to have X political beliefs." These beliefs change, of course, which makes limits the amount of statements you can make. However, Boomers voted in Reagan and therefore they can bear some of the blame. The definition of a generalization is that it is not universally correct.

Not to mention political leaders from that demographic have most certainly kept the same policies in place. Obama would be the first Gen X President (1961!) and his beliefs are definitely not the same as Bill Clinton's. Of course there's a limited sample size here, but still.

Random note: For some reason there appears to be an occasional conservative spike in the 18-21/18-24 Bracket before becoming more liberal. Odd.

Fake Edit: Goddamnit you people type fast. Oh well, I will post anyway.

[Count Chocula]

Here's a little more BB perspective, based on the names of key "decision makers" who got us into this mess:

Alan Greenspan: "Greatest Generation"
Barney Frank (the "Fannie Mae and Freddie Mac are fine" guy): Baby Boomer (b.1940)
Bill & Hill Clinton: Baby Boomers
GW Bush: Baby Boomer
Ben Bernanke: Baby Boomer
Hank Paulson: Baby Boomer
Dick Cheney: Baby Boomer (born 1941)
Franklin Raines, Fannie Mae CEO: Baby Boomer.
Barack Obama: Baby Boomer (near the tail end of the BB range)

And in England:
Tony Blair: Baby Boomer
Gordon Brown: Baby Boomer

These men and women, among others, have piled up debts that we, their children, and our own children, will have to pay off over generations. If we can and don't just default. So yeah, there's reason for Gen X'ers and Gen Y'ers who can do math and understand compound interest to be pissed at our elders.

[B5B7]

But saying everyone in rural or city areas vote a certain way is a generalization. Durrr.

Reading skills are good - I did not say what you are saying.
You read a statistics book; also suggest reading some books on logic and clear thinking.

Count Chocula - many people [millions] of all age groups got into debt - they weren't all forced to make bad investments/financial decisions.
I notice no Nick Leeson (or American equivalent X-gen rogue traders) in your list.
It is a rather over-selective useless list, that leaves out many "key decision makers".
You gild the lily by labelling those (such as Chaney) born prior to 1946 as baby boomers.
In Britain it is not solely the PM who is responsible. There is a Parliament, political parties, financial institutions, etc, etc. who also bear responsibility. Similarly, with USA and everywhere else, there are many to blame.

[Ender]

Mustn't be cruel to you poor babies ie Gen X & Y.

So this is all about foisting the blame for you generations fuckups onto someone else. Thought so. Wow, a Baby Boomer refuses to take responsibility. Who could have seen that one coming

You claimed that it was Generation X who was in charge of the financial institutions and caused this mess in you opening posts. This has been shown to be a lie. So now you move the goalposts in claiming that it wasn't key individuals. Bullshit.

[B5B7]

Ender - I take responsibility for what I am responsible for. It is a whole lot of whingers (like you) who are responsible for their own actions/decisions not taking responsibility simply because they are claiming not to be of responsible age.
I believe in 'Starship Troopers' there would be some relevant lecture on this concept.

It has not been shown to be a lie - it is you who is moving the goalposts.
I have never claimed Gen X in charge of the institutions - I said many of the "financial wizards" responsible are of gen X (others of other generations - BB, GG, etc).
Learn to read, and quote people accurately.
There was no one generation that fucked up - that is like a concept of religious. Every generation has screwed things up; To blame older (& younger) generations is natural, as each new generation does; but it is arrogant for you and others to solely blame one generation (which is an arbitrary concept, as complex inter-relations exist); it is also childish.
Maybe that is why you don't want to share in responsibility - as a child, not a grownup.