Debt and 'Value'

Britain's official National Debt has increased by £30 BILLION due to an EU ruling [adopted by the national statisticians] that counts the debts outstanding by Network Rail - already guaranteed by the state - shall be counted as part of the national debt. Since the debt is increasing anyway, as the deficit on government spending rolls on, this is just a small addition to a sum that will soon be equal to three-quarters of the reported turnover of the economy in a year [the Gross National Product]. Gideon Osborne's abject failure to eradicate the month-by-month deficit becomes even more obvious; and the deficit on Britain's balance of payments with the rest of the world also continues to increase.

So what security can Britain offer to the aliens who continue to lend money to the state? What is the 'value' of the assets that are at the command of the government? Over the last forty years there has been a massive sell-off of the formerly nationalised industries and of the land-bank that used to be occupied by airfields, shipyards, barracks and ministry buildings: so the actual physical and financial assets at the command of the government are about the least ever. They go no distance to meeting the perceived 'value' of the debt.

What about the notion that the British people, all taken together, owe the national debt: what capacity does the nation have to buy back the debt from foreign owners? The answer is simple and painful: personal estates are overwhelmingly in debt; most households have no net assets. So what about firms? Surely they have massive assets? Yes, they do: but they belong to the shareholders and the bondholders in the companies, many of which belong to foreign companies and individuals. The 'value' of companies - their day-by day share price, multiplied by the number of shares issued - can change dramatically: the biggest supermarket chain, Tesco, fell by 10% last Friday. Nobody knows what Tesco is really 'worth', though it is clear that the turnover and profitability of the company has declined over recent years. The directors fear that the decline could continue, so they have brought forward the installation of a new chief executive. There are deeply in competition with German-originated companies that specialise in no-frills low-priced goods. The German companies plan to increase the number of their stores quickly, meaning that the number of square metres of  retail space in total is increasing: while the turnover per square metre in Tesco and Morrisons and other stores declines. Hence competition is inexorably decreasing the 'value' of the less-successful companies' estates.

Yesterday's Sunday Telegraph ran a feature on Manchester City Football Club, asking how much the 'BRAND'  is 'worth'. It was noted that the owners of the company that controls the club have 'invested' £930 million - mostly in buying and paying managers and players - with the result that trophies have been won and thus a global reputation which could eventually challenge that of Manchester United has been achieved. This could enable to club to sell shirts and other equipment and sell access to firms to share in the kudos of the club; enabling observers to place an estimated 'value' of £330 million on the brand. But how much of that 'value' could be unlocked in a sale of the club? Is it a British asset? It is located in Britain and registered in British law; but it belongs to the Middle Eastern 'investors' who supplied most of the £930 million. It is of no use as a guarantee of the national debt.

 The whole thing rests on 'confidence': what is that worth?