Britain comes unglued

James Saft in the International Herald Tribune (July 9th) points out that Britain some years ago (under the superficial Blair) made the decision to base the “new economy” on property (assumed to rise indefinitely) and the financial services industry (presumed to know what it was doing). The country outsourced everything else and saw financial intermediation grow 50% in 5 years and property activity grow by 35%. But it is now in a double whammy, with no manufacturing to speak of and nothing much to export. Instead it is faced with a catastrophic drop in house prices that some people predict could be between 35 and 50% over a 5 year period, and a drying up of international credit that means huge layoffs in the City of London, currently the principle financial center of the world. Goodbye to credit, easy mortgages, adding an extension to your home, foreign holidays paid for out of notional increases in the value of your house and all the jobs that go with these goodies.