Preparing for a UK Fiscal Crisis

Guest post: Dr John explains what he's doing to prepare for this looming crisis - why he's moving his wealth out of sterling and into global assets. Your Sunday thought piece.

Good Sunday to you from Kilkenny, Ireland where I am appearing at Kilkenomics 2025,

What a lovely place, and what a splendid event.

Dr John has puts his head above the parapet today. Worried about a UK fiscal crisis - aren’t we all? - he’s diversifying away from sterling into global stocks, commodities and dollar-denominated investments.

But first, ICYMI, here is this week’s mid-week commentary.

Bitcoin's Correction: Time to Panic or Time to HODL?

Second, let me flag that I am bringing my comedy show to Birmingham this coming Saturday 15th November. There are only a handful of tickets left (Huddersfield the previous night has now sold out). If you are in that neck of the woods, do come. These shows are fun.

And third, let share an interview I recorded about The Secret History of Gold - Money, Myth, Politics and Power with the newly launched Political Books podcast.

The Secret History of Gold with Dominic Frisby

So, over to you, Dr John.

Time to get out of the UK?

I took this photograph in Lewisham last year when I was doing some work at Goldsmiths, part of the University of London, near New Cross station. Remarkably, it’s about 12 minutes by train to the City, the financial heart of London and epicentre of Britain’s wealth. Of course, there are poor areas in London - there always have been - but as someone who’s first wife grew up in Peckham, a pretty poor place that I visited regularly in the 80s, and who lived in London for over 10 years in the 80s and 90s, I can assure you it was not always like this, even in the less well-off areas people (of all ethnicities and cultures) still worked and took pride in their local environment.

In fact, I managed to find a photo of Peckham from the mid-80s, when I was at university in London, and one from today:

Guess which is which. And why is this important?

By now, it should be manifestly clear to all that a large proportion of the wealth generated by those parts of UK that still excel at innovation and creativity – including Cambridge, Oxford and parts of London, which is without doubt an economic powerhouse – is going to have to fund those parts of the UK in seemingly terminal decline – economically, socially, and culturally with increasing crime and state dependency.

This is possibly going to end badly. In the short term, higher taxes will damage entrepreneurship and productivity and it seems clear that longer (or even medium) term there are increasing chances of a fiscal crisis.

It might not end this way – sensible politicians on all sides are realising our entrepreneurial economy is being strangled by the demands of the “welfare economy” and the UK just might be saved.

However, right now, 30-year UK debt is yielding 5.25%. Let’s be clear, the UK government is not paying 5.25% because it issued bonds at much lower levels of interest. But when it has to refinance those debts as those bonds mature, it’s going to have to pay higher rates than currently.

The “fiscal death spiral” will be when governments have to issue debt at such high interest rates that they have to issue even more debt at even higher rates, as confidence continues to be lost, simply to pay the interest on the debt they already issued at high rates. Eventually, the market realises the debts simply cannot be repaid, the currency collapses and after a bout of hyper-inflation, political soul-searching, welfare cuts, and general chaos, the debt is inflated away and the economy bounces back.

Many will blame profit-seeking “bond vigilantes” when this happens. I even saw an article that, as all bond sales are currently successful, it simply shows faith in the UK government(???). Let’s be clear, everything has its price but selling a bond at a high yield is a sign that you’re not seen as a particularly attractive proposition. The sad truth is that markets can invest anywhere and if UK debt isn’t attractive on a risk-reward basis the price will fall (and bond yields rise) until it is. Unfortunately, for the ones that were right (and, generally, they are on the right) “I told you so” won’t do much good.

As investors, how can we prepare for this?

The natural first responses are (a) sell the British pound because currencies generally fall in a fiscal crisis and (b) buy real assets such as gold (and despite me, wrongly, never being a fan, bitcoin).

If you live in a Third World country, such as the UK, I urge you to own gold or silver. The bullion dealer I recommend is The Pure Gold Company. Pricing is competitive, quality of service is high. They deliver to the UK, the US, Canada and Europe or you can store your gold with them. More here.

But if we are selling something we have to buy something else and the question is, what, when gold and bitcoin are at or near all-time highs?

Developed Europe has similar fiscal problems, as does the USA but, whatever you think of Trump, it’s undeniable that in the USA they both acknowledge there is a problem with vast swathes of society becoming unproductive, and are attempting to do something to fix it. The US is still a growing economy unlike the UK where GDP increases per capita are barely moving at all. The US does have massive fiscal deficits, but their currency has already fallen this year and, being the global reserve currency, is as good a fiscal get-out-of-jail-free card as it gets. And the state is so much smaller over there (36% of GDP compared to 45% in the UK).

How to diversify