Excerpt from the Chancellor of the Exchequer of the UK:
There has been the weak economic data from the US and the historic downgrade of that country’s credit rating.
And the crisis of confidence in the ability of Eurozone countries to pay their debts has spread from the periphery to major economies like Italy and Spain.
But these events did not come out of the blue.
They all have the same root cause.
Debt.
In particular, a massive overhang of debt from a decade-long boom when economic growth was based on unsustainable household borrowing, unrealistic house prices, dangerously high banking leverage, and a failure of governments to put their public finances in order.
Unfortunately, the UK was perhaps the most eager participant in this boom, with the most indebted households, the biggest housing bubble, the most over-leveraged banks and the largest budget deficit of them all.
History teaches us that recovery from this sort of debt-driven, financial balance-sheet recession was always going to be choppy and difficult.
And we warned that would be the case.
But the whole world now realises that the huge overhang of debt means that the recovery will take longer and be harder than had been hoped.
Markets are waking up to this fact.
That is what makes this the most dangerous time for the global economy since 2008.
I think we should be realistic about that.
I think we should set our expectations accordingly.
