The Telegraph piece “Why Britain Is on the Verge of a Cataclysmic Financial Crisis” surveys the entire landscape of financial collapse, comparing the current situation to the run-up to the crash of 1987. “The bond markets are crashing around the world, just as they did in the run-up to the crash of 1987.… If it came to pass, a market crash on the scale of 1987 would prove a cataclysmic political and economic event. It would send interest rates soaring, increasing costs for mortgage holders and for highly indebted companies, especially in the property sector. Business would fail and pension funds would be hard. Perhaps most importantly of all, the already-high cost of servicing national debts would climb even higher. It would force profligate politicians to finally face up to the consequences of their wild spending.… Yields have spiked to levels that even seasoned market professionals can barely remember. The yield on a 10-year U.S. Treasury Bill, the key instrument that determines prices across the world, was closed to 4.9% on Friday, a level not seen since 2007.”
The article added: “There are plenty of warning signals elsewhere as well. In the U.S., there was a small-scale panic in the spring prompted by the collapse of Silicon Valley Bank, caused at root by its over-exposure to a falling bond market…. The consultancy firm Alvarez & Marsal estimated in a report last week that $500 billion of corporate debt will have to be refinanced next year; all of those companies will find they have to pay far higher rates, putting pressure on their businesses. But it will be felt most painfully by governments, for the simple reason that they have borrowed so much over the last decade.
“In the U.K., the cost of servicing our huge debt mountain has risen to £100 billion a year, double the amount only a year ago, and almost 11% of total government spending. In France, debt costs are now the biggest single budget item, forcing the free-spending Macron government to make savings elsewhere. Interest on Italy’s debts already consumes 4% of GDP every year and that is only going to rise as it borrows more and more simply to stay where it is…. In the U.S., interest payments on the national debt are forecast to rise from $475 billion last year to $1.2 trillion by the end of the decade….
“In reality, all the major governments across the developed world will have to start cutting their spending, and reducing their borrowing, simply to bring their cost under control. Add it all up, and it is going to be very tough to adjust to higher rates.”
