Bankrupt Britain

After Jim Rogers advised US investors to pull out of UK equities and sterling on grounds that Britain is finished we've seen a lot of speculation surrounding the possibility of actual national bankruptcy. Here's some from today. Here's some from, err, last November. Here's some from a few days ago. Here's some from mid-2007 (if you begin to get the feeling this really isn't a new idea you're not alone).

Are we - UK Plc - potentially bankrupt? Better than that - we're already, actually bankrupt. Here's Mencius on Maturity Transformation, the underlying design error of the global financial system (I'd read the whole post, or this won't make any sense). Here's Arnold Kling discussing the same concept. According to the Maturity Transformation view, UK Plc is solvent only by the extraordinary accounting fiction that it can buy money from the future and pay for it with money it has only borrowed today. In other words - and as Taleb said of banking profits a couple of years before the crash - it is obvious that UK Plc's solvency is "simply cash borrowed from destiny with some random payback time". A financial system operating Maturity Transformation (MT) is always a bank run in potentia because under MT the short-term liabilities (massively) exceed short-term assets and you merely hope that everyone won't ask for their money back at once. For potential bankruptcy to become actual bankruptcy only requires that hope not to be realised, once. Don't get me wrong - I'm hoping. But I wouldn't want to put any money on it.