I predict another decade of disasters

by Harvey Jones on 10 January 2010  |  28 comments
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In the next decade, house prices will crash, the pound will collapse, we'll need an IMF bail-out and Britain will be plunged into darkness. So lots to look forward to, says Harvey Jones.

The Noughties was a decade of financial disasters and I can't imagine the Teenies will be any different.

Here are my suggestions for the 10 most likely causes of financial scandal and disaster in the next decade. You may have a few ideas of your own.

1. House price collapse.

Can the UK go through an entire decade without another exploding property bubble? Nah, thought not. Low interest rates are already blowing up the next bubble and pricing people off the property ladder. But rates won't stay low forever, and when they rise, watch out.

Danger level: 9/10.

2. Currency crisis.

The pound is already down around 30% against the euro at €1.10, but it could get much worse. The UK is set to borrow hundreds of billions from the bond markets to cover its massive public deficit, but the markets are losing faith in our ability to repay. The disastrous pre-Budget report convinced them that Gordon Brown lacks the will to deliver the tax hikes and spending cuts needed to solve our fiscal crisis. Unless the new government acts swiftly after the next election, expect a plummeting pound and full scale fiscal crisis.

Danger level: 7/10.

3. Derivatives.

In a quiet corner of some glass-fronted Wall Street investment bank, a too-clever-by-half mathematics graduate is producing a derivative-based instrument of such spiralling complexity that it will make collateralised debt obligations (CDOs) look like 1+1=2. It will earn investment bankers billions, before exploding and showering the rest of us with toxic slurry. Investment bankers will then earn billions for telling us how to clear up the mess, and they won't even say sorry. Shortly after, in a quiet corner of some glass-fronted Wall Street investment bank...

Danger level: 8/10.

4. UK energy crisis.

Like our public finances, the UK energy sector is a catastrophe waiting to happen. North Sea oil is running out, our dirtiest coal and oil-fired power plants are being closed under EU law, our nuclear fleet is declining faster than it will be replaced, and there is no way we will meet binding EU targets on renewable energy by 2020. So we're reliant on imports at a time when cash-rich emerging giants such as China are buying up the world's energy. All we need is for the oil price to stick above $100, a crisis in the Middle East, or for Russia to turn off the taps, and we will be plunged into darkness. Anybody who lived through the 1970s will tell you that an energy crisis burns wealth.

Danger level: 8/10.

5. China.

China's GDP is growing by between 8% and 9% a year. It has just overtaken Japan to become the world's second biggest economy and will overtake the US by 2030. Everybody agrees it is unstoppable. But they say that about every investment bubble. Corruption, dodgy demographics, unsettled minorities and eco-meltdown could all prove China's undoing. And if that happens, we're all in trouble.

Danger level: 6/10.

6. Mr X

The noughties could boast "fraudster to the stars" Bernie Madoff. The teenies will have... of course nobody knows, yet. There are countless fraudsters out there, from Lagos to Los Angeles via London, quietly preying on the likes of you and me, and there always will be. Here are 10 of the scariest scams. Make sure none of them ruin your decade.

Danger level: 6/10.

7. IMF bailout.

The state is currently spending £178 billion more a year than it is taking in taxes. The UK's public debts have risen above £1 trillion, or £2.2 trillion, if you include hidden bills such as the Private Finance Initiative (PFI), banking bailouts and public sector pensions. The only way to pay it back is by hiking taxes and slashing public sector spending, but any party that does that won't be forgiven for a generation. If our politicians lack the nerve, the IMF will have to step in and do the dirty work for us.

Danger level: 5/10.

8. The next great banking crisis.

The big investment banks are still gambling with our future, and why not? They rake in vast profits if they win, the taxpayer picks up the tab if they lose. Unless the authorities clamp down, we will go through the same thing all over again, except this time the taxpayer is skint. The best hope of avoiding a second crisis is to rebuild to Glass-Steagall, the US firewall that used to separate risky investment banks from solid deposit takers. It was erected after the depression, but gradually worn down in the 80s and 90s. If not, the too-big-to-fail banking sector could suck up all our wealth again.

Danger level: 8/10.

9. Peak oil.

There is only a finite supply of oil on earth, and some point the stocks will start running down. Experts disagree on when oil supplies will peak, but it could happen before 2020. The global economy runs on oil, but what happens when the oil starts running out? 

Danger level: 8/10.

10. Blue skies and black swans.

There are plenty of storm clouds gathering and any one of them could give us a serious soaking. But many disasters burst out of a clear blue sky. What do you see striking us next? Share your thoughts with other lovemoney.com readers using the comments box below!

Danger level: 7/10.

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