Debt: A plague on all your houses!

Debt: A plague on all your houses!

I want to introduce you to my world. The world of Christmas viewing in the UK. "Take That Come to Town", "Take That: Backstage at the Circus" and "Take That: The Circus Live". One afternoon and evening of pop bliss - some would say.

For those of you who don't know this group comprised of five lads. Robbie Williams, who went on to solo success, and the others who split up but came back and have had something of a renaissance.

It was intriguing to hear them say that they didn't really realise what they had the first time around and that this time it was a far more valued experience. After one bubble, they're learning to manage the next.

Can we learn anything from history? Would we do things differently given another chance? Should governments have spent trillions on saving the financial institutions that caused the worst recession since the second world war? (Maybe not: the best solution would have been to nationalise and wind down the banks.)

Would Sheikh Mohammed bin Rashid Al Maktoum, Dubai's ruler, do things differently? And those who stood on the sidelines and cheered would they take back their words?

Take for example, Fares Noujaim, the president of Merrill Lynch's business in the Middle East and North Africa, quoted in June 2008 in this New York Times article Boom Times Take Root in Dubai, as saying this about Dubai's new financial district:

"This is the new Wall Street - it’s the centre of gravity."

And of Dubai itself:

"Bubble? What bubble? ... This will be the next Singapore or Hong Kong.”

Now, I've seen numerous booms and busts since 1987 and I know one thing. When people, usually the taxi drivers, start ramping up a stock or investment opportunity it's time park your money under your mattress.

Booms need cheerleaders and they're called the "bulls" in market speak.

Mr Noujaim - you could say was a bull and he probably still is.

Believe it or not, even if a country is taking a pounding in the stock and bond markets there are always buyers out there. And it would appear that despite Dubai wrestling with its debt obligations there are still people willing to buy its bonds.

Let's be honest, no other Gulf Co-operation Council country has the infrastructure to surpass Dubai. It will remain the financial hub of the Middle East for sometime to come.

If Dubai's and Greece's problems tell us anything then 2010 will be the year nations face up to the mountain of debt they have built up.

Abu Dhabi has given Dubai the chance of delaying that reckoning for now, but the cost to Abu Dhabi has been pretty steep - about 60 per cent of this year's oil revenue.

Greece's self-inflicted trouble could rub off on to other nations and the new decade could see investors fleeing in their droves.

Greece misled the club it belongs to. The European Union insists nations participating in the euro currency keep their public sector deficit at three per cent, but the socialist government elected in October revealed the deficit would actually be 12.9 per cent in 2009.

By the end of the year, Greece will have a debt of 300 million euros ($438 billion). That is more than Greece's economic output of $357 billion.

That had credit agencies downgrading Greece's debt, which typically tells investors they've lost faith in the nation. Predictably, stocks fall, bonds yields rise and the cost insuring against a default rise. The nation pays more interest to attract and retain investors.

If Greece was not part of the euro it could deflate its currency to get out of the mess, but it doesn't have that luxury any more.

Greece won't collapse, but now it has to make deeper, unpopular budget cuts. That means slashing salaries of public workers, something that Ireland has initiated with a 10 per cent cut.

Politically that can be suicide. Otherwise they face the wrath of the markets (investors).

But it's not the emerging markets that need to worry the most, it's more the developed nations such as the UK and US. However, I'm not saying that they will default, that is highly unlikely.

It's not just nations that have built up huge debt piles.

The distinction between Dubai and its state-owned investment vehicles is as about as clear as mud.

And let's just take a look at one high profile company - UK high street retailer Marks & Spencer.

It has a cult-like following that I've never understood! Its products and stores - in my opinion - are dull and they have been for some time.

In 2004, the charismatic Philip Green, probably one of the UK's most successful retailers, having bought another dull institution BHS, wanted to buy M&S.

He gave up after Stuart Rose, its new chief executive, took the helm and bribed shareholders. The $4 billion bribe was to sell a business and take a loan to hand out money to shareholders.

The strategy is pretty clear. By taking on debt a potential buyer would think twice about acquiring the company and shareholders wanted a return for the poor performance of the company's stock. So everyone is happy.

Britain's love affair with debt was going strong even then. It would only be a matter of time before 125 per cent mortgages would be available. And Britons would have more unsecured debt (credit cards) than any other nation.

All this was done on the watch of Tony Blair, the former prime minister, and Gordon Brown, the then finance minister.

Brown nailed his colours to his misguided "light touch" of the financial industry allowing US insurer AIG's discredited financial engineering firm to morph and spew out worthless paper from the streets of London.

That's not to say, and forget, that this financial crisis was created and exported from Wall Street.

But Brown, having done the decent thing of giving the Bank of England independence, dispersed the bank's power to manage markets and the financial sector to other institutions.

And when it came time to test those new powers the system collapsed.

Brown forgot "prudence" and dolled out billions to social projects - redistributing money from wealth generating sectors to the public sector - where today a civil servant is better paid and looked after then those who work in the private sector.

From selling gold at a knock down price, opening the floodgates to tax rises the more subterfuge he used in the hope that voters would not notice and they didn't as the good times rolled on.

Now the music has stopped and Brown must plug a financial hole that'll drag the country into third world obscurity.

Britain's debt as a proportion of its economy (Gross Domestic Product) is at its highest level since the Second World War.

But at that time, Britain had an industrial base from which it could trade its way out of trouble. And it did, until it began propping up worthless institutions - from the auto sector to mining.

Now debt rating agency Moody's is warning the UK and US that their top rating may "test the AAA boundaries".

The world has done remarkably well to drag itself out of the worst recession since the second world war. The story this year will be about the debt and unwinding the huge stimulus packages required to pull the world out of the abyss.

Bond holders from Dubai to Greece are willing to hold onto debt as long as they see light at the end of the tunnel. That light is regular interest payments.

The pressure will continue to grow on China to allow the yuan to appreciate. All the time it doesn't, it will continue to create a bubble economy at home; money that should be going into productivity will be shifted to speculative endeavours - stocks, commodities and property.

The solution to this problem is not pumping hundreds of billions more into the economy; it is to allow Chinese industries to face competition on equal terms with the rest of the world.

Economic growth in the developed nations is likely to be modest - it's the emerging market that will lead the world's recovery.

For developing nations this looks likely to be a jobless economic recovery, but as governments may not have the fire power to meddle further in providing a fiscal stimulus then this next period of growth, led by investment, could be longer and more sustainable.

And there is that key word "sustainable", Take That understand the need to manage their brand, maximise their earning potential, and pick up new fans for the long run.

Maybe governments can pick up a few tips from the pop band on nurturing the economy and ask the question: Is it legitimate for governments to take on debt that future generations have to pay off?

Fortunately most of the money Britain has pumped into the economy has been denominated in sterling - the biggest side affect for the economy will be inflation.

And that too, may be the United States' saving grace. But I'd bet my last dollar on the US. It still has the companies to compete with the rest of the world.

The dollar's fall from grace will be temporary, giving it time to get its balance sheet into better shape.

While Britain cannot afford an aspirin for the morning after the party, the US has loaned out more than $15 billion to companies working on green technologies. It's already looking to the future it has the brains and the brawn to move ahead.