‘The big education for me is that civilisation is fragile and can be destroyed in a heartbeat' - Jeremy Brade, former peacekeeper in Sarajevo.

Tuesday, August 17, 2010

Growing ownership by foreigners

Republished from the Broad Oak Blog:

One indication of our plight is the balance of ownership between ouselves and foreigners - who owns more (including official debt) of whom? The Econbrowser blog reproduces the following graph from a study of the US position:
And I give below a graph I've constructed from official figures, showing what's happened here in the UK:

For those inclined to blame solely New Labour for the economic disaster, this should be an eye-opener - look where we were in 1997.


H said...

Historically, the US and the UK have been poles apart on this measure.

The US was a debtor nation for almost all its history. This was a natural consequence of being a "new" country, with many investment opportunities and limited sources of domestic saving. It became the world's creditor only with WWII and the bankruptcy, defeat and/or communism of all significant potential competitors. It is now reverting to its historic condition as a country which invests more than it saves. This is probably more of a political problem than an economic one.

The UK was a mirror image of the US for much of the time: a creditor until the exhaustion of all its resources during WWII. You will note in your chart that the balance had turned only very marginally positive for the UK until North Sea oil and gas gave a short term and highly deceptive boost to our position in the 70s and 80s. Now the trend has turned against the UK. Since the world's willingness to finance us is probably far more limited than its willingness to finance the US, this is probably an equally short term situation, which could end 'nicely' - export boom, slow down in consumption - or 'nastily' - collapse in £ and tax revenues. Probably a bit of both if history is any guide.

AntiCitizenOne said...

It doesn't really matter, especially if you have an LVT.

Sackerson said...

I've heard that the US was helped considerably by British money swindled out of us in crooked 19th-century land deals, and then grabbing our gold reserves etc as payment for our buying war materials from them while we tried to save civilisation in Europe. But if you look at official US data, federal debt was at (or close to) zero in 1830. Blissums.

ACO: one day you'll be able to explain LVT to me in such simple terms I can understand it. Not that it'll ever be allowed, if it's a good idea, because good reformist ideas are about reducing meddling and chicanery and the cat will never bell herself.

Sobers said...

Like a dowager Duchess living beyond her means by selling the family heirlooms bit by bit, the only way you can run a persistent balance of trade deficit is getting foreigners to 'invest' their cash in the country, usually by buying assets. If you have lots of assets to start with, you can rub along like this for quite a long time. But eventually reality bites, and income has to meet expenditure, or more accurately, vice versa.

We are approaching reality.

James Higham said...

I have an idea - combine the two blogs and then we don't have to jump from one to the other and back. :)

Steven_L said...

Interesting, especially the reversal when the markets crashed. Obviously foreigners buying assets on UK markets is what influences our currency these days - not trade with foriegners.

Steven_L said...

Sobers - people buy sterling to buy foreign assets too - look at all the African mining companies listed in London for example.