LET us discuss how HSBC’s debt is now larger than UK public debt.

I am sure many of you have been hearing the scare stories about the UK debt being ultra high and how the country needs to “live within its means”.

This is something that government and media like to promote because it opens up the doors to justify public spending cuts and privatisation, even though we owe most of the debt to ourselves.

Yet for the UK corporate world money is always available for vanity projects, corporate welfare, bailouts and the purchase of financial assets.

In the last 12 years we have spent £990bn on HS2, Track and Trace and bank bailouts while at the same time the government has been cutting services and public spending. It is a formula of selling the public austerity so the corporate world can have prosperity, as we have witnessed for more than 10 years now.

If anyone says the UK should “live within its means” then tell them to go and see how much debt the British banking system holds. Tell them that one British bank, HSBC, owes more money than the UK government owes.

Here is one number you wont hear in the media, this is the total debt amount across the whole UK banking system, which stands at a whopping £8.1tn – more than four times the UK government debt bill.

BRITISH BANKING SYSTEM DEBT 2020 – £8.1 trillion
ANNUAL REVENUE FOR 2020 – £145 billion
BRITISH GOVERNMENT DEBT 2020 – £2 trillion
ANNUAL REVENUE FOR 2020 – £556 billion

Which one is weaker? You decide

Just one UK bank (HSBC) owes more money than the UK government owes

At the end of fiscal year 2020 HSBCs total liabilities stood at £2.04 trillion.

If we look at the debt-to-turnover comparison between the UK government and HSBC bank then statistically the UK government is 19x financially stronger than HSBC bank. So if our finances are as bad as the media deems them out to be, then imagine the media’s reaction over HSBCs debt bill.

Even after the pandemic, UK tax receipts in 2020/21 were £556bn. HSBCs 2020 revenue was just £45bn. UK government debt is 259% higher than its annual tax revenue; HSBCs debt is 4,311% higher than its annual revenue.

And that is just HSBC. Barclays owes £1.45tn, Lloyds owes £820bn and NatWest Group owes £755bn. Banking debt is everywhere. The UK debt bill is just 25% of the UK banking system debt but the state takes 3.8x more money than the banking system. As we can see, it is apparent that the UK public debt bill poses much less risk than the total debt bill across the whole UK banking system.

Another major factor is the UK government has the power to issue its own money; the UK banking system only has the power to issue loans. It does not take Albert Einstein to see which entity is financially stronger than the other, so do not believe all the doom-and-gloom messages surrounding our public debt. Financially we are strong.  

If this trend keeps carrying on then by 2026 UK banking debt will reach £10 trillion.

G10 debt distribution level

British banks want inflation so they can deflate this large debt bill

Inflation is good for those who own a large amount of assets and businesses loaded up with debt, but it is not good for the many people who see their living costs rise. But because the UK banking system is the biggest holder of debt in the UK it very much welcomes rising inflation.

Here’s how it works for the ordinary person; if a worker takes home £30k a year and inflation stands at 3% but their annual increase in wages is just 1%, that worker is witnessing a decline in real wages. At a 3% inflation rate the cost for £30k in goods and services will rise by £900 but wages increases by just £300, so this means a loss of £600 in purchasing power and a decline in real wages for that worker.

The higher inflation rises the greater the fall in real wages. When inflation outpaces wages a nation becomes more poorer. But asset owners become wealthier, and this has happened for thousands of years going all the way back to the Roman Empire.

Inflation deflates current banking debt levels because it increases their income and asset prices while deflating the value and cost of their debt. However, the problem for banks is that central banks usually raise interest rates to fight inflation and this means higher interest rates charged on a bank’s debt bill.

If the inflation rate rises higher than interest rates then a bank can deflate their current debt through increasing prices (inflating their income). If interest rates rise higher than inflation then this can create a problem for banks – central banks know this and will factor this into their thinking when they decide to raise rates to fight inflation.

Think of ‘debt deflation’ through the lens of ‘wage inflation’. Let’s say for example that your monthly wages after tax comes to £2,000 and you have a £500 monthly cost for your mortgage and credit card, this means 25% of your wages are allocated to paying off your debts (mortgage and credit card debt). If your wages (inflate) rise to £2,500 this then leaves you in a position where only 20% of your wages are allocated towards paying off your debt. In simple terms your debt burden has fallen because your debt has been indirectly deflated through your wages inflating, your wage inflation deflated your debt.

This example of wage inflation has deflated your current debt burden and would be a good thing for you. As a worker you would welcome ‘wage inflation’ because it means your debt can be paid off easier and you have more money to spend. All workers would welcome wages inflation.

The exact same process occurs in the banking and business world but instead of wages rising, goods and services rise (inflate) in price and the current debt on a balance sheet gets deflated. Inflation is a golden egg for the banks because banks hold a lot of debt and much of this debt gets deflated, which is good for profits and it mitigates the risk of defaults.

It is without a doubt that UK banks currently welcome inflation because it deflates their £8.1 trillion debt bill; they just don’t want the sort of inflation that triggers a rise in interest rates on this debt bill. If the prices of assets and stocks crash then HSBC’s debt bill will become harder to service but if assets and prices inflate, their debt bill becomes less of a burden and money is freed up. This is why HSBC would welcome inflation, because deflation would be devastating for them.

So when you think of this £8.1 trillion debt bill you must keep in mind that the banks’ solution to this debt not blowing up is inflation.

Debt and inflation will soon be going to financial war with each other and the casualty will be the people’s purchasing power. Fact is, deflation will create ultimate chaos for the UK banking system but inflation will create a lesser debt burden and more profits for it. This is what happens when banks get addicted to debt.