02/09/2011
A leading global economic expert has described the UK as being in the 'danger zone' due to the three different levels of debt it currently holds and has warned that urgent action needs to be taken to prevent a crisis.
The chief economist at the Bank for International Settlements – BIS – said that the developed countries had higher levels of debt than originally feared and more radical steps were needed to prevent an escalation of the financial crisis.
The report suggests that a country can be considered as being in severe financial difficulties when its government debts exceed 80-100% of GDP, its corporate debts are over 90%, whilst its household debt threshold is 85%. At the end of 2010, Britain was the only main economy to exceed all of these danger points, with debts of 89% of GDP, 126% and 106% respectively – well beyond what the BIS consider as tolerable.
Britain was also singled out as having the biggest explosion of debt of all of the developed nations in the last 11 years, when taking into account the various levels of GDP-comparable figures.
The report from BIS said that the UK as well as the US were likely to see their debts spiral even further unless more drastic measures were put in place. The BIS suggested that some of the measures that the UK have adopted in crisis times did not go far enough and more emphasis should be put towards creating savings rather than providing 'preferential treatment' to debts.
The levels of debt in the UK have been highlighted as being beyond the tipping point and could result in another financial crisis, just as the country starts to recover from the last one. BIS predictions are usually taken very seriously by economists as they were the sole organisation to forecast the events of 2008, well before events started to take an obvious turn for the worse.
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