economic nonsense?

Not really. We buy more from furriners than they buy from us. Furriners therefore hold a lot of Pounds that they got from us in that one-sided trade. They have to do something with those Pounds:

• They buy UK shares and property and so the difference is made up by us selling bits of the UK to them. They collect dividends and rent from us in the future.

• They buy UK Treasuries. They therefore effectively loan money to the UK government. They then collect interest from future governments.

• They buy financial derivatives based on consumer loans here. In future they collect interest from Uk citizens in debt.

In the end, there's no free lunch. They're basically loaning us the money to buy more of their goods and we're taking up the offer even though we know we'll be owe them an increasing amount of our earnings in the future. It's really no different from the local store selling you stuff on a loan and then collecting the interest.

FoFP

No - you'd be loaded with lots of lovely foreign goods. The bank, though, would be bust.

Now there's an idea... :-)

The UK achieves a higher yield on its overseas investments than foreigners receive by investing in the UK, that's partly why the City keeps things afloat.

I always wonder (*) if the mainland wouldn't be doing rather better if we could somehow give Glasgow and Liverpool some sort of free transfer into Ireland (I'm not particularly fussy which part of Ireland - beggars can't be choosers).

FoFP

• Particularly after The Sunday Times finding that in the middle of Glasgow, half of adults don't work, and don't want to work.

Thats it then.... we close down manufacturing industry, and keep paying the city wizzkids those superb bonuses, and everyone else works in the service sector. Sorted!

consistently

And the problem with that is ????

Seriously - do you actually WANT to work in factories or down the mines ?

Actually, it should be - do they actually WANT to work in factories or down the mines for £2 a day ?

Daytona

The guys who work in the local steelworks for 37 hours a week admitedly on shifts and who are as thick as the proverbial plank earn near to 40k.... a bit more than 2 quid!.... and to be honest they dont have the brain to do anything else.

I suggest you actually look around one of these mills, you will find very few people around, just lots of automated equipment and a handful of technical operators. The UK still produces a decent amount of steel but with a fraction of the work force. That's the thing, you either up-skill and automate or ship out the jobs to a low cost country.

I would suggest that your grasp of economics is both sentimental and wrong.

I dont believe I gave an opinion one way or the other to be wrong..... or right..... and the steelworks does still provide jobs for 4500 guys...me included, although as you say manpower reductions and automation are the keywords...which has produced loads of work for me...i instal the cctv to enable some of the remote automation.

This is why simple proles like myself have this nagging feeling it's all fundamentally unsupportable and some day will have to stop, but by that time we won't have any industry left to make our own clothes, durable goods etc and not be in a position to export enough to pay for the oil and food we need to import.

If such a thing were to happen what do you reckon would be the early manifestations of it happening ?

DG

Well, unless some rich country dies and leaves us an inheritance, or somehow we can renege on all that debt without it causing a war or the collapse of the international monetary system, then yes, it will sooner or later have to stop. If it's a war though, then on the plus side, the yanks are in the same boat as us. If it's international financial collapse though then the bad news is that we deoend a lot on the City of London, and that's just the sort of thing that will have them all looking for jobs as plumbers.

In the end, you can't live on credit today without getting poorer tomorrow unless your wage is rising faster than the interest on the amount you're going into debt by each year.

You'll perhaps be the only person here that's surprised to know that I've posted at length on what the end of a credit bubble would look like. The short form though is the price of gold going up and the price of assets (stocks, houses, cars, art etc) collapsing, followed by a period of deflation and a very long climb back to the kind of prosperity that involves people spending what they earn, shunning any sort of borrowing at all, and even putting a little of their earnings aside for a rainy day.

In between here and there, I expect ructions in the derivatives markets, with Ground Zero either being mortgage-backs (some sign of this happening already in US subprime property loans) or credit default swaps. If you hear of a big incident there, run for cover.

FoFP

If we could achieve parity we wouldn't need to have any international trade, just become isolationist.

Would you feel more secure if you lived in China..?

Also 30bn doesn't sound that large.

Countries generally don't die, of course, that's precisely why our currency and national debt has been in existence since at least 1690. The British government can continue to issue gilts in perpetuity.

If we get into serious trouble in the medium term we can always inflate these debts away provided they're denominated in sterling, see the 1970's for further details.

In the 1970's the Bank of England set gilt rates. Now the bond vigilantes set gilt rates. If we try to inflate our way out of trouble, they'll simply raise gilt rates to where they're still around 2% in real terms. So if we manufacture 10% inflation, we'll see the ten-year at 12% and, because mortgages are more and more commoditised as mortgage-backs, mortgage rates at 14%.

Somehow I doubt we could have that without there being some harm to quite a few people. They might like the idea that their mortgage debt was being inflated away, but being homeless would taint that a little.

FoFP

"M Holmes" wrote

The answer, of course, is to "manufacture" -4% inflation (deflation). Then mortgage rates can be 0%, and no-one would ever need worry about being forced out of their homes - they can *always* service the mortgage debt (at 0 indefinitely)!

The only "problem" might be when it comes to sell. But people would easily get around that by simply *not* selling....