'We Are In The Next Phase of The Financial Crisis'

Here's the latest from our Highly Placed Professional.

'There has to be no doubt that control of the deficit and our public debt is key to our economic wellbeing. The UK, like too many other countries, has lived beyond its means for far too long.

It's only today, however, that we are realising the extent of the current Government's concerns, and more to the point, what they are prepared to do to try and get us out of this mess. Put bluntly, the Government is freaking out about the potential for a total of £1.4 trillion of public debt by 2014, and the £70 billion interest rate bill that will then be required just to service it.

I've said before that we'd end up having to radically cut public services, and the welfare state, if we were ever going to get out of the hole Labour dug for us. Well. it seems that the new Lib / Con posse is aiming to do just that, and are now even talking about a change in the very way of life that we Brits call our own. What they realise is that the markets are the true kings, and have to be placated. But it goes further than that. A pragmatic government also realises that billions squandered on debt servicing isn't just rotten value-for-money, but it's also completely unsustainable.

And let's face up to another home truth - we are indeed in the next phase of the financial crisis. But what no-one seems to realise is that there's no going back to the way things were. I had dinner with a client recently, a guy who's been in the bond market for some 30 years. He put it simply: 'This situation in the markets won't change for a long time. I'm talking 10 to 20 years'. You see that's where everyone has been side-swiped, or should I say bitch slapped. We thought we were out of the woods last year, but we didn't reckon with the next big thing - the sovereign debt crisis. And we are now finding out what the ramifications are. Labour didn't see it, didn't understand it, and frankly didn't care. Luckily these new guys do, and so do many other Western nations. But make no mistake, while this unwinding of the debt spiral is attempted, it's going to be a very edgy time'.

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