By Ambrose Evans-Pritchard, International business editor
8:33PM GMT 22 Jan 2012
Britain has sunk deeper into debt. Three years after bubble burst, the UK has barely begun to tackle the crushing burden left by Gordon Brown. The contrast with the United States is frankly shocking.
The latest report on “Debt and Deleveraging” by the McKinsey Global Institute shows that total public and private debt in the UK is still hovering at an all-time high. It has risen from 487pc to 507pc of GDP since the crisis began.
As the chart above shows, as recently as 1990 Britain’s debts were still just 220pc of GDP. Has a rich country ever been debauched so fast in peace time?
The ordeal of belt-tightening will be grim, dragging out for a generation if Japan is any guide. The Japanese at least began their post-bubble debacle as the world’s top creditor nation with a trade super-surplus and a savings rate of 17pc. Britain has no such buffers.
It is a very different picture in the US where light is emerging at the end of the tunnel. American banks, firms, and households have been chipping away at their debts, more than offsetting Washington’s double-digit deficits.
The total burden has dropped to 279pc, down from 295pc at the peak of the boom. Households have purged roughly a third of the excess, roughly tracking the historic pattern of post-bubble deleveraging.
US debt is already lower than Spain (363pc), France (346pc), or Italy (314pc), and may undercut Germany (278pc) before long — given the refusal of the European Central Bank to offset fiscal contraction with monetary stimulus.
One is tempted to ask what all the fuss was about in the US. The debt of financial institutions is just 40pc, compared to the UK (219pc), Japan (120pc), France (97pc), Germany (87pc) and Italy (76pc). Bank debt has dropped from $8 trillion to $6.1 trillion — accelerated by the Lehman collapse — as lenders rely more on old-fashioned deposits.
Tim Congdon from International Monetary Research said US banks were never as damaged as claimed and now have the highest capital ratios in over thirty years. The rate of loan write-offs has dropped from 3.2pc to 1.9pc, a faster improvement than after the financial crisis of the early 1990s.
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