An economy based on ever increasing numbers of lawyers, bankers, accountants and journalists may sound like a horrible idea but it has worked well for Britain.

This quote from the linked article seems very important to me. Fundamentally, the notion that "advanced Western economies" are moving out of manufacturing and into services, as they previously moved into manufacturing from agriculture seems linked to building an economy of laywers, bankers, accountants and journalists.

What we appear to be seeing is an admission that the entire model relies on the asset bubble.

And perhaps that is the key issue for the LTE. This is not just about Britain being vulnerable to swings in the global economy, after all, a country dependent on manufacturing can equally be vulnerable to a downturn in the world economy. The issue here is that the modern British economy has been founded on a particular set of extraordinary conditions (low interest rates, asset bubble) that the FT has tended to assure us were "here to stay, a new world, the great moderation" but now look to have been just a temporary circumstance.

As the oil or gas can run out for a resource dependent country, has this "natural resource" of "Greenspan low interest rates" also gone for good? Is the financial sector destined to shrink as the coal mines once did?

After another big write down of 10 billion in mortgage related 'assets', UBS became the latest Western bank to seek a financial lifeline from the cash-rich East today, selling a stake of more than 10 percent to investors from Singapore and the Middle East.

"It's a measure of how the geopolitical and financial landscape has changed," said David Williams, the head of banking research in London at the investment bank Fox-Pitt Kelton Cochran Caronia Waller.....

For UBS, Mr. Williams said, it was an "interesting and depressing" day. "Only a year ago," he noted, "this was considered one of the most financially sound institutions in the world."....

UBS's group chief executive, Marcel Rohner, said, "We don't operate from a position of fear."

<chortle, chortle>

You can't be me, I'm taken

Dear Sir,

In your editorial today ("The UK economy is vulnerable"), you rightly point out the dangers for the UK economy from the aftermath of the financial crisis and the housing bubble. I would argue that Britain is likely to face what could be labelled the "Anglo Disease", in reference to the "Dutch Disease": a long period of economic weakness as the parts of the economy which were weakened during the boom of the financial sector are unable to replace that sector as the engine of growth as it comes crashing down. The analogy to oil&gas, which underpinned the Dutch Disease, is twofold. First, in that finance, in the past 25 years, was a sector with intrinsically higher returns, and second, in that the resource (very low interest rates) is coming to an end. The high returns were driven by macro-economic policy (inflation moderation, and the "Greenspan Put", which allowed more risks to be taken) in a favorable political context (the spread of liberal policies and free markets, deregulation, a higher tolerance for inequality). To a large extent, it was a self-sustaining mechanism, with higher asset values generating bigger profits and making bigger bets possible, further sustaining prices. The capture of an increasing share of revenues by financiers was also made possible by giving the rest of the population access to more debt, thus allowing them to keep on consuming despite stagnant revenues, further creating demand for financial instruments.

Absolute levels of debt, increasingly poor risks, and asset price inflation turning into official inflation are all conspiring to end that cycle and, in all likelihood, reverse it, as borrowers deleverage and asset prices come down. The exact symptoms of Anglo Disease are likely to include a long period of sub-par growth and, in the context of booming emerging markets, surprisingly persistent inflation. Politically, there will likely be calls for a more equal sharing of income, and more stringent regulation of financial institutions, which proved unable to resist to the temptation of ever higher returns from increasing risk-taking with other people's money.

Sincerely, etc

I'll add a link to the series here as as PS.

In the long run, we're all dead. John Maynard Keynes

When locusts move on, they leave nothing behind

It looks well grounded comment... though part of me does think back to the history of French comments on the 'English' economy'.. for example....

The bank of England is destroyed: its fake currency shrinks to its real currency.. its credit lost; its resources annihilated; and general terror...

That is from the "Memoire sur l'Angleterre" the 1773 document laying out the hoped-for results of the French strategy of subversion in Britain's colonies in North America. Enthusiastic hopes of a collapse of the 'un-natural English economy' have surfaced many times over the centuries in France... Let's see how the present situation evolves.

Reference: Memoire sur l'Angleterre (1773) in Ministere des Affaires Etrangeres, Memoires et Documents: Angleterre Vol 52 Fol. 180-223.

Cited in I. and R. Tombs 'That Sweet Enemy' pp168-9