Sunday, 5 July 2009

The banking behemoth

Do we really need a banking system that has assets is over four times GDP?

I have no idea what the average interest charge is on the total assets of the UK banking system. However, lets take a guess and say that it is 5 percent. If it is, and I doubt that it is any lower than that, then each year, debtors pay banks over 20 percent of GDP as interest. That is a shockingly large number, especially when you consider that the government takes around 37 percent of GDP as taxes.

I know I am mixing up my national accounts. Obviously, you can't add the two numbers together. Nevertheless, the comparison does capture a deeper truth about the UK economy. It comprises of little more than money lenders and tax inspectors.

Most banking lending finances consumption not investment. Likewise, taxation mostly goes on benefits. Neither are terribly productive.

As such, the UK has a strong smell of unsustainability about it. The contradictions built up over ten years of financial mismanagement are coming undone. It seems so unreal and incredible, and nothing symbolizes this dreadful state of affairs like our bloated banking system.

Four hundred percent of GDP? It can not be; it should not be.


Anonymous said...

What about Switzerland? Their banking system is off the chart. Well, it stretches to the end of the chart.

AntiCitizenOne said...

Not sure this really means that much to be honest.

Jo Jordan said...

Yes the assets are a multiple of GDP and because their assets have the form of a balloon we've had to take on national debt to keep their assets intact.

even before the crunch my little notebook tells me that both manufacturing and creativity sectors were larger than the financial sector in terms of GDP (I don't know about bodies employed.)

The banking crisis, as far as my noobe acquaintance can make it out, is an explosion below the waterline of the ship of the British economy, but the British economy is a large ship.

But that we are a nation of tax collecters and money-lenders - yes, an awful lot of work seems to be make-believe.

Anonymous said...

Forgive me, I'm not even a novice when it comes to finance, but is Switzerland a different kettle of fish because of all the strange business laws and tax?

Witold said...

Switzerland is a somewhat special case - it is a small land with long banking traditions. The diagram shows a ratio to each country GDP; it would not take THAT much assets to be worth many times more than all swiss cheese and chocolate...