Britain fact of the day

Here is one source:

The total sum [for the new proposed bailout] is equivalent to more than two-thirds of Britain's annual GDP of £1.4 trillion.

Here is another:

That is equivalent to a total U.S. bailout of almost $10 trillion (about 2/3 of GDP).

One Calculated Risk commentator states:

this is a bad reality game show…

when does the audience get to vote?

Addendum: Do note that is the gross flow of cash from the government, not the net financial cost or the net social cost.


If every country in the world including China resorts to a huge stimulus, who will be left to finance it?

Some say the US will be able to finance its stimulus domestically, but even if that were possible, it seems self-defeating. As an extreme case, if the government writes everyone a check and then everyone turns around and invests all the money into a Treasury bond ETF or money market fund, it will accomplish little. To be truly effective, stimulus money has to come from an external source and be spent on consumption.

If anyone insists that the stimulus will be a) effective and b) domestically financed, it seems they are counting the same money twice. If they also simultaneously think that money on the sidelines will move back into equity markets and cause those to recover, they are probably counting the same money three times over.

There is simply not enough money in the world to do everything that needs to be done... unless they print it.

Underwriting bad debt, isn't that what they used to do at Fannie Mae & Freddie Mac?

Welcome to the Brave New World

Cool. Now we have a way to test Krugman's theory that we need a humongous stimulus theory. If Britain's stimulus does not work it proves Krugman wrong. We also now have a comparison with the US which has a more moderate stimulus.

The obituaries in the British Telegraph newspspers are among the best in the world. However, it is never wise to rely on their reporting of anything economic or statistical, unless it is confirmed independently.

The British finacial sector is larger relative to the British economy than the US financial sector is to the US economy. Both sets of finacial institutions behaved equally foolishly. Therefore a British bailout may be expected to be larger relative to their economy than a US bailout.

This is "Stock versus Flow" confusion. The "Bad Bank" will contain a vast amount of dodgy debt, billions of it.

That doesn't mean though that the liabilities will all fall in one year. Or in fact that all the debt it will take on is bad.

The strategy is rather like the "bad insurance company" created during Lloyd's problems, Equitas. I don't think it's wise.

I don't think it will bankrupt the UK either though. The Prime Minister however may achieve that feat.

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