Bad News for Britain’s economy

JP Morgans has issued a warning to Great Britain about the state of their economy, stating that it is as bad as the 1970s when it was necessary for Britain to apply for a loan from the IMF.

The bank warns that Government debts, when compared to the total size of the economy, are higher than during the 1970s crisis.

It adds that there could be a “marked fall” in the value of the pound as international investors re-assess the health of the British economy.

The Telegraph reports that:

In 1976, Britain was forced to turn to the International Monetary Fund (IMF) for a £2.3 billion bailout. In return for the funds, the IMF insisted on reforms to the British economy including public spending cuts. The period was regarded as one of the most humiliating in the history of the British economy.

In a research note entitled “UK Fiscal Policy: some lessons from the 1976 crisis”, JP Morgan said: “On many metrics, the UK’s fiscal position is currently worse than observed around the IMF loan in 1976…The size of the current budget deficit suggests that the UK is leaning heavily on the credibility it has built up since the mid-1970s.”

The bank’s “central forecast” is that Britain will “muddle through” the crisis. However, JP Morgan added: “The possibility that markets could take a more severe view of the fiscal position is clear, and the 1976 experience demonstrated that the situation can change quickly and unpredictably.

“Officials fretted over the possibility of a marked fall in the currency well before the crisis. Looking back at 1976, one can argue that as the crisis broke, the underlying situation had actually begun to improve (growth had begun to recover and current account deficits had begun to fall).”

Even though Gordon Brown has been warned about the dangers of the high level of government borrowing, he insists that this has been necessary during the recession to stop unemployment rising. However, is that really the case? The issue here is that the Brown Government has plunged the UK into a high budget deficit without considering the necessary tax receipts to cover the borrowing. As I see it, the growth in the welfare state, with an increasing entitlement expectation by those receiving welfare is placing pressure on the budget deficit.

The stench that is Goldman Sachs

Over the past year I have heard the name of Goldman Sachs in less than flattering terms. It is for that reason that I have noted the involvement of Goldman Sachs with the Greek Government, and a cover-up of the financial deficit in Greece. This cover up really stinks.

The Mail Online makes the following comment about the activities of Goldman Sachs and Greece:

Goldman Sachs struck a secret deal with Greece to help it mask its vast debts, it emerged yesterday.

The Wall Street giant is claimed to have reaped as much as £192million in fees by entering a complex currency transaction in 2001 that helped Athens borrow cash without putting it on the books as a loan.

The so-called ‘swap’ deal, while permitted under EU rules, helped Greece meet eurozone limits on government borrowing.

Read more: http://www.dailymail.co.uk/news/article-1251280/Goldman-Sachs-new-storm-secret-deal-mask-Greek-debts.html#ixzz0fg3VgZKJ

However, it should be noted that other European countries have also been involved in similar activities. Now if one looks at the various European countries that are now in crisis, one has to ask the obvious question: Were they involved in a similar swap deal that had the intention of masking the size of the country’s budget deficit?

Countries such as the U.K. are still feeling the pain of the FGC in 2008. That collapse had a lot to do with derivatives and swaps. I am not in a position to talk about the use of these derivatives and swaps because they are new financial instruments. However, what seems to be clear is that their use has not been for a good purpose. What is also clear that a Wall Street firm such as Goldman Sachs has obtained huge amounts of benefit as a result of participating in these deals.

The fact that the swaps are not new, and they have been used all over Europe makes me question what happened to the other merchant bank Beare Stearns. Was it this kind of swap that then defaulted that caused the collapse of Beare Stearns? At this stage, until I can find more information, I have to say that I have no idea on that subject, but I do want to know more about why it collapsed.

This information regarding Goldman Sachs and their dealings with governments all over the world is quite relevant to the present economic crisis. This bank has been used to mask government debt. When this happens there is good reason to be suspicious about what is going on in any country which is about to end up in financial collapse.