Tags: currency

Harvard Professor: U.K. Currency Crisis Looming

By    |   Monday, 06 Jul 2009 08:53 AM

A leading Harvard University professor of financial history fears that a currency crisis is looming in the United Kingdom, a debacle which will hurt investors around the globe.

Niall Ferguson, a financial historian, and a Brit by birth, said that the U.K.'s public finances are rapidly deteriorating.

Standard & Poor's warned on May 21 that the country soon might lose its AAA debt rating. The cost of bailing out the U.K.'s banks is about £100 billion pounds, or close to $166 billion. The government's financial deficit is swelling because of bank bailouts there. The deficit is an astounding 12.4 percent of GDP. The deficit may balloon further to 17 percent of GDP by 2010.

"We're not Iceland, or Ireland, but we're closer to them than we are to the U.S.," said Ferguson, author of The Ascent of Money: A Financial History of the World (Penguin, 2008), noting that the former had to borrow from the International Monetary Fund to stave off complete insolvency, and the latter is now suffering the deepest economic contraction in its history since the Great Depression.

A warning signal of further troubles for the U.K.: The rise in the yield on 10-year gilts. "Bond investors have real doubts about the financial security of the U.K.," Ferguson said. "They want some kind of risk premium."

Ferguson takes not a bit of comfort from the pound sterling's rally against the American dollar. However, it’s still down 22 percent from November of 2007.

The esteemed professor doesn’t think there is a risk that the U.K. will completely default on its debt. Devaluing the currency does have much of the same effect, though, he said, as it erodes the value of the money that government can use to repay its creditors.

Other analysts agreed, and think that the Labor Party Prime Minister Gordon Brown's policies have made the crisis worse, much like President Obama's stimulus has exacerbated the financial situation in the U.S.

A Web memo by Brett D. Schaefer, a scholar at the Heritage Foundation, a conservative think tank in Washington D.C., said that Prime Minister Brown's "suggested solutions would, for the most part, do little to prevent future crisis; on the contrary, they could do great harm."

© 2017 Newsmax. All rights reserved.

   
1Like our page
2Share
Markets
A leading Harvard University professor of financial history fears that a currency crisis is looming in the United Kingdom, a debacle which will hurt investors around the globe. Niall Ferguson, a financial historian, and a Brit by birth, said that the U.K.'s public finances...
currency
369
2009-53-06
Monday, 06 Jul 2009 08:53 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved