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Is The UK Facing A Sovereign Debt Implosion?

December 22nd, 2010

The Conservative/Liberal Coalition now running the government in the United Kingdom began its administration with a flurry of draconian spending cuts. Under the leadership of Prime Minister David Cameron and its chancellor of the exchequer George Osborne, this imposed austerity has been unleashed under the threat of a looming sovereign debt crisis. Social spending is being radically reduced, and the armed forces, especially the Royal Navy, are being virtually disarmed. The question therefore must be posed; will these austerity measures succeed in their stated purpose, which is removing the danger of a sovereign debt catastrophe in the UK?

There are disturbing indications beginning to accumulate that point to the steps being undertaken by Cameron and Osborne as being too late and insufficient. The UK’s Office for National Statistics has just released public spending figures for November, and they show that net public borrowing requirements increased to a record  £22.770 billion. This staggering level of deficit spending seems to show that the UK is now in a public debt trap. Even though unlike the U.S. most of its public debt is long-term, the British government has accumulated a national debt so large that even small increases in bond yields will add significantly to the need for more public borrowing, making it unlikely that even Osborne’s austerity budget will have much impact. Furthermore, these same austerity measures risk a double-dip recession in the UK, further depressing government income. All these trends point to an elevated danger of a sovereign debt implosion confronting the United Kingdom, in a timeframe that may be much sooner than many analysts would anticipate.

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