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