Wednesday, 21 January 2009

Picture distortion

Tough talk from the Telegraph this morning. Tough — and alarmist. In fact, business editor Ambrose Evans-Pritchard’s comment piece bordered on irresponsible. There is a “real risk”, he said, of the UK defaulting on its national debt for the first time “since the Middle Ages”. His breathless prose covered the “reckless” City, the “fiscal incontinence” of Gordon Brown and the “pitiful regulation” of the UK housing market. Here’s a bigger chunk:

“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.”

You can understand Jim Rogers and George Soros’s need to talk the pound down, both doubtless have a vested interest in its demise, but AEP is, as far as we know, a disinterested party. The UK's foreign currency reserves stand at $61 billion. The combined foreign currency liabilities of those troubled banks are $4.4 trillion. “This is a mismatch indeed,” according to Paul Amery at Index Universe. But there is hyperbole at work here. Our debt rating is still measured in triple A’s, for now at least. And the bond markets are still buoyant, albeit for the admittedly sobering reason that aside from piling into expensive gold, or sticking huge bundles of cash under your bed, there really are few safe alternatives.

AEP talks about the unsustainable level of national debt, but the bank bail-outs heavily distort the picture. Remove those liabilities and we’re almost back in prudent territory. Our national debt is roughly a quarter of Japan’s; less than half that of Italy. Those banks haven’t gone bust, they’ve been part-nationalised. Nobody knows how much of their debt will turn out to be toxic, least of all the Telegraph’s business editor.

It’s easy to politicise in a crisis. Even easier when the numbers are so mind-bogglingly huge. But however much attention you give to Brown’s bank bailout (and it deserves as much spotlight as we can possibly give it) bear in mind that on this alone, the government had no other choice — at least no other palatable choice. With the markets as touchy as they are, simply talking up the possibility of a default gives the idea credibility — a very bad thing when you’re trying to maintain interest in UK government stocks. That’s not the responsibility of the media. But it’s a good idea to leave hyperbole to the Opposition.

Who knows what’s eating AEP. Maybe he got more hits than Peston today.

No comments:

Post a Comment