Practically this would be very difficult.

A cleverer combination, say 3% less pay (standstill) and 3% less hours (robust management action) and natural wastage (3% pa, robust management action and legislation reducing unnecessary bureaucratic task) might be workable, particularly as sterling would probably respond positively.

The problem is this equals continuing recession for several years, but may be that is what we are in for.

Seems unlikely to happen under the current administration though.

But what really bothers me is that the level of debt will reach a tipping point where it makes the economy non-viable. And I think we’re already there.

Abyss, cliff, here we come.

All that happens is savers shift their cash to New Banks (thus old banks owe New Banks money for assuming this liability). When mortgages with old banks come up for renewal, New Banks skim off the best mortgage risks (say, < 70% LTV; loan < three times joint salary, no history of arrears etc) and lends to them, these borrowers then repay old banks, who in turn repay New Banks.

Instead of transferring out the bad stuff, which is, as Peston points out, very difficult to value, you leave the bad stuff where it is and transfer out the good stuff, which is easy to value.

Old banks thus becomes ‘closed funds’ that make no new loans, they merely collect mortgage repayments and redemptions, do the repossessions etc. The liabilities to New Banks get repaid first; once they’ve been paid off, bond holders get paid next in the order that they would have fallen due – if the money runs out before the ten and twenty year bonds are redeemed in full, well hey, the loss lies where it falls, if by a miracle there’s still some money left over after that, then the shareholders get it of course.

This requires minimal government involvement, zero taxpayer exposure and is the closest thing to a truly free market solution.

That’s that fixed. Next.

Second, though, we should expect that the ‘Anglo-Saxon model’ will be revised significantly. One of the revisions will be the discovery that it is all too easy to elide the standard (and correct) critiques of ‘mercantalist trade policies’ with a ruinous neglect of/ignorance of, balance sheet issues for households and governments. In short, we’ll discover that our economic policy settings have been targetting solely the p&l of Britain Inc, whilst ignoring its balance sheet. Worse, we’ll find that crude applications of the ‘Anglo-Saxon model’ tacitly encouraged this tendency.

Reply: It has good and bad features at the moment – just as regulation and government have good and bad features. It was globalisation that raised all our living standards here in the UK by giving us access to so many excellent and low priced goods for years from Asia.

You could reduce government spending by £100 billion, no sweat, mainly by reductions in staff above the current median salary point and the three pounds they spend for every pound of their salary.

The reality is that despite all the political bluster and governments intervention in the world’s economy, there is little they can affect. People think like people; markets think like markets; they existed long before so called governments. People and markets have seen their wealth and income decline by a large percentage. Both will go into defensive mode for years to come; and, look for strong men in their tribe to be their leaders.

The days of complex economies being run by amateur politicians are coming to an end. Prepare for the world to revert to 194 sovereign states that look more like large corporations than, old style, countries. The “middle ages” will make a comeback.

Discuss; marks will be given for original thought.

It will be possible to have 100% interest rate and to have worthless currency.

And it will be if the economy is killed.

The time is too rebalance the whole economy:
1) House prices should be of the same value or less than in Germany (Germany produces more).
2) Salaries of state and para-state employees should be the same or less in Germany.
3) Percentage of state and para-state employees should be the same or less than in Germany.
4) Military budget expense per head should be the same or less then in Germany.

And so on…

Savings are in the range from £50-100 billions annually!

Interestingly enough, taxation in the UK is higher than in Germany, but standard of living used to be worse (probably it will become much worse).

WHY? Who spent all our money???

If RBS was closed one day, and all accounts frozen, it would surely cause mayhem. People unable to access their salaries, unable to pay mortgages and other debts, no-one to undertake collections, RBS warrants and cfd markets frozen? I imagine that if the government let it go rather than step in there’d be civil unrest, not just a fire sale.

When Lehman went the US govt had to bung AIG several $billion to stop a chain reaction from their cds exposure bringing the whole financial system down (again just from what I read and understood).

Potentially, a bank like RBS being allowed to go under could start a chain reaction that would be like pressing a ‘reset’ button on the global financial system.

Lehmans balance sheet was roughly a third the size of RBS. I read that PWC reckon it will be 10 times harder to wind up than Enron – and that’s with the rest of the financial system still switched on.

Party politics and jibes aside, I actually find this really worrying.

Reply: My previous posts do set out the figures for you