In the roadrunner cartoon series Wile E Coyote runs off the end of the cliff so fast that he defies gravity for a few seconds but when he looks down, realising his predicament, he falls to earth. Is this us in Britain right now?
In spite of the current double and possibly triple dip recession bank/creditor forbearance and ultra low interest rates have enabled over indebted consumers and businesses to avoid crashing to earth. The corporate insolvency rate is just 0.9% compared to 3.6% in the milder recession of the early 1990s, a third of mortgages have had capital repayments converted to interest only and between 5% and 8% of mortgages have had some sort of forbearance. At some point the nation will have to face up to its accumulated debts, banks will need to realise losses and like the coyote the weaker debtors will fall to earth and default.
At the end of November the Bank of England implored UK banks to raise yet more capital presumably to insure against exactly this. In our own way we have tried to help business owners protect their capital by issuing a briefing sheet on “financing distressed businesses” which you can find at www.mw-w.com/briefing-sheets