In November, Willem Buiter warned that the UK could follow Iceland into default:
With the pound sterling dropping like a stone against most other currencies and credit default swap rates on long-term UK sovereign debt beginning to edge up, this is a good time to revisit a suggestion I made earlier on a number of occasions (e.g. here, here and here), that there is a non-trivial risk of the UK becoming the next Iceland.
The risk of a triple crisis – a banking crisis, a currency crisis and a sovereign debt default crisis – is always there for countries that are afflicted with the inconsistent quartet identified by Anne Sibert and myself in our work on Iceland: (1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.
All of this seems to be coming true.
UK banks are technically insolvent.
“The 5-year credit default swap for the UK government has widened by 25bp since early January.”
And the Sterling is tanking. Indeed, Jim Rogers is saying:
“Sell any sterling you might have. It’s finished”