UK is on the brink of economic collapse, market analyst warns
The UK is on the brink of economic collapse, with catastrophic fiscal conditions, a large budget deficit and high interest rates, Alex Krainer has warned.
The UK’s public debt is outpacing its GDP growth, and the government’s budget deficits are being covered by the Bank of England’s monetary inflation, leading to stagflation and possibly hyperinflation.
He believes the UK is the most exposed economy and will crash the hardest. And the financial markets seem to agree based on the performance of British, German and American bonds.
Alex Krainer is a market analyst, researcher, trader and hedge fund manager who has been active in the financial industry since 1996. He is the founder of Krainer Analytics and I-System Trend Following with its daily TrendCompass investor reports.
Yesterday he published a video warning of Britain’s approaching economic collapse.
Krainer published the video above with accompanying text on his Substack page HERE.
He began his video by explaining that recent world events have allowed the dire state of Britain’s economy to go almost unnoticed.
“Momentous events that took place during the last few months of this year, including the presidential elections in the United States and the war in Syria, overshadowed important developments in the news cycle, especially on the economic front. One of them is the approaching collapse of Great Britain,” he said.
“I believe that we are at the precipice of events that will remain recorded in history, perhaps like the 1921 Weimar Republic hyperinflation, 1929 stock market crash or the collapse of the Soviet Union in 1991. “
In August, UK Prime Minister Keir Starmer revealed a £22 billion “black hole” in the public finances (referring to the government’s unfunded liabilities) and announced that the October budget would be “painful.”
The October budget added £142 billion in new debt, which the government plans to raise in capital markets, and included £40 billion in new taxes, primarily affecting British employers and working people.
The budget’s planned borrowing exceeded market analysts’ expectations, with Britain’s gross financing needs being double what was anticipated, and the new taxes will likely widen the gap between public spending and tax receipts.
“Britain is already running one of the world’s largest budget deficits,” Krainer said. Analysts, including Deutsche Bank’s Sanjay Raja, who said the budget was one of the largest fiscal loosenings of any fiscal event in decades, and Bloomberg’s Simon White, who characterised the fiscal picture in Britain as catastrophic, were right.
The Bank of England’s Intervention and the Repo Market
Repos, or repurchase agreements, are a form of secured loan where a borrower sells securities to a lender with an agreement to repurchase them at a higher price. They are an important source of funding for large financial institutions.
The Bank of England’s (“BoE’s”) introduction of a repo programme on 22 July, which had already reached over £40 billion by 5 September, is seen as evidence that one or more British financial institutions are on the verge of collapse.
The BoE’s launching of a repo programme is significant, as it indicates a need to provide emergency funding to struggling financial institutions, and the rapid growth of the program suggests a severe crisis in the British financial system.
Repo transactions involve private financial institutions or money market funds lending to investment banks, providing a source of liquidity and earning interest income with minimal risk.
However, during financial crises, the repo market can seize up, causing lenders to demand higher interest rates and re-collateralisation, or even refuse to engage in transactions.
In 2007, the Global Financial Crisis was triggered by a run on the repo market, with the US Federal Reserve (“the Fed”) injecting $1.5 trillion in liquidity through other facilities.
By 2019, another financial crisis was looming, with repo rates rising sharply and accelerating in the US, prompting the Fed to intervene as the lender of last resort. The Fed provided tens of billions of dollars in liquidity to the repo markets, initially intending to shut down the facility by October 2019, but ultimately expanding it to over $200 billion. The full details of the intervention remain obscure, with the Fed keeping the information secret, including which banks received repo cash.
The reason for the secrecy was that the problem was much bigger than initially disclosed and not limited to the US, with the World Bank Group and International Monetary Fund meeting in October 2019 to discuss the global economic situation. UN Secretary-General António Guterres warned of “tense and testing times” and facing severe headwinds. He pleaded with the overlords of global finance to “do everything possible” to avert “the possibility of a Great Fracture” in the world.
By January 2020, interbank lending and commercial credit were drying up in Europe, but the declaration of the covid-19 pandemic created a smokescreen for a global banking coup and the largest-ever bailout of the Western financial system.
The US CARES Act provided a $6.2 trillion stimulus package, equivalent to nearly $20,000 per person in the US. Somehow, US lawmakers had the foresight to introduce this Act in January 2019, over a year before the covid pandemic was declared. But rather than the $6.2 trillion provided for in the Act, the bailout to bankers exceeded $10 trillion, or over $30,000 per person in the United States.
The use of repos played a crucial role in averting a financial collapse in September 2019. And thanks to their opacity and complexity, repos can serve as a means of perpetual bailout or a covert mechanism of monetary policy for central banks.
The UK’s Financial Crisis and Government Spending
Today, it seems that we are at the precipice once more with Starmer’s budget representing the largest fiscal loosening since the 2020 lockdowns and the BoE flooding the financial system with liquidity.
The true state of the UK’s public finances is unclear, with the government debt rising to nearly £116 billion in 2023, a 27% increase from the previous year, and a debt-to-GDP ratio reaching 100%.
There are suspicions that the real state of the UK’s finances is being deliberately concealed, with some estimates suggesting a “black hole” of £71 billion, even though Starmer says it’s £22 billion.
“[The] UK’s Office of National Statistics says that the government added £64.1 billion in deficit spending through August this year … On May 1 this year, Kier Starmer confronted then Prime Minister Rishi Sunak about the £46 billion black hole before correcting himself, first to £64 billion and then to a staggering £71 billion!” Krainer said.
“Whatever the case, the ‘black hole’ is there and it is probably much bigger than we know. Of course, by the time Starmer became Prime Minister, the hole had magically shrunk to ‘only’ £22 billion – the sum that’s perhaps small enough that it can be fixed in part by freezing a few thousand pensioners this winter.”
The UK government’s decision to cut winter fuel subsidies to 10 million pensioners is expected to result in a significant number of deaths, with estimates suggesting that a similar proposal in 2017 could have killed 3,850 pensioners, and the current energy crisis may lead to an even higher number of fatalities.
Krainer likens the decision to cut winter fuel subsidies as being a “human sacrifice” to appease the gods of finance, which demand a limitless flow of free money while inflicting savage austerity on the poorest and most vulnerable members of society.
The UK government’s massive spending on unproductive, ideologically driven projects has created a significant financial burden, with a £50 billion black hole already created in 2022.
The costs of covid countermeasures and the Orwellian track and trace program were £9 billion and £37 billion, respectively, while vast sums are being spent on net zero schemes.
“Just in 2022, the government spent £12.79 billion on ‘mitigating the impact of climate change’, whatever that is. Furthermore, at the beginning of October 2024, they announced they’d allocate another £22 billion for carbon capture projects,” Krainer said.
“Starmer’s government also added £2.9 billion to Britain’s “defence” budget, a 4.5% increase over the previous year’s budget and more than twice as much as they’re saving by freezing the pensioners.”
The upkeep of illegal migrants is estimated to cost the government £8.5 billion per year, but the actual cost is likely much higher, potentially exceeding £17 billion.
The UK’s support for Ukraine has cost more than £13 billion in aid since February 2022, but the real damage comes from sanctions against Russia which has caused extensive economic damage, including a sharp increase in energy and input prices.
The sanctions have also led to the loss of business for many British companies, including the cancellation of British Airways’ direct flight from London Heathrow to Beijing.
According to European High Representative for Foreign Affairs Josep Borrell, the total support for Ukraine is around €60 billion for Europe. But the subsidies to help families and firms face the consequences of the war are around €700 billion, ten times more than the support for Ukraine. If the UK has been affected similarly to EU nations, the full cost of Project Ukraine could be £150 billion or more, with all that capital already being flushed down the drain and unlikely to be recovered.
The Decline of the British Economy and the Gamble on Ukraine
The situation in Britain is worse than it appears, with the Starmer government and the BoE taking extreme actions, including accumulating unpayable debts, increasing government deficits, imposing hard austerity and expanding monetary inflation.
The country’s economy is exposed to a high risk of crashing, with the markets indicating that British government debt has performed the worst among British, German and American bonds over the last four years.
The UK’s economic decline is attributed to its history of making mistakes similar to those of other powers in similar positions, including imposing hard austerity, increasing military spending and engaging in foreign adventurism, which has led to a significant increase in public debt and budget deficits.
The prediction of Britain’s economic decline was made three years ago, before the war in Ukraine, which added tens of billions to the debt overhang, and was based on an understanding of history and large affairs rather than just statistics.
Former Prime Minister Boris Johnson’s cryptic speech in 2021, warning European governments of an impending choice between supporting Ukraine and relying on Russian hydrocarbons, suggested that Britain took a leading role in Project Ukraine and gambled heavily on it, which ultimately went badly wrong and has contributed to the UK’s decline.
Krainer said the British establishment is now facing a crisis, with the bills for their gamble coming due. The country is at risk of experiencing a deep crisis of stagflation and ultimately hyperinflation, potentially becoming the first G7 economy to capsize
