I had an interesting “subscribe before it’s too late” e-mail from MoneyWeek a few days ago (click here to read it). They argue that Britain is basically broke and inevitably doomed to return to the 1970′s, a la Greece, and I have considerable sympathy for their view. It’s not just Britain though; the entire Western world (with the honourable exception of Germany) has so much debt that it is effectively bankrupt and when the markets finally accept this, everyone will be in for major upheaval.
I suspect it will start with the Eurozone – no amount of austerity will enable those countries to balance their budgets and the European Central Bank will have to start printing money to fund their deficits. This will lead to high inflation which will spread to the rest of the Western world (yes, even the mighty U.S. of A.) as their budget deficits come under scrutiny. Inflation will lead to higher interest rates and that will make Western government debt unserviceable. In order to avoid hyperinflation of Zimbabwe proportions, governments will have no choice, but to accept defeat and default on their debt.
