leveraged buy - outs including, of course, liverpool football club. finally among sovereigns, the picture up until recently has been benign with public debt flat relative to gdp. but the crisis means that picture is set to change dramatically. among the g7 countries, the imf forecast that public debt ratios will rise from around 80 % of gdp in 2007 to around 125 % by 2014. in the uk and us, public debt ratios are forecast by the imf to double, mirroring the pattern following past financial crises. 6 taking together the debt position of the financial sector, households, companies and sovereigns paints a sobering picture. total debt ratios relative to gdp rose significantly in all ten countries studied by mckinsey ’ s, from an average of around 200 % in 1990 to over 330 % by 2008. 7 over the same period, uk debt ratios more than doubled, from just over 200 % to around 450 % of gdp. to date, servicing these debts has been cushioned by policymakers ’ actions. government debt and equity have substituted for private debt and augmented private equity to support impaired balance sheets, especially among financial firms : a third of capital raised by banks since the crisis began has come courtesy of government. and through monetary measures, interest costs have been lowered dramatically : debt servicing has fallen, often dramatically, across many sectors. these extraordinary policy measures have acted like a painkiller for debt problems. but painkillers offer only temporary relief. loans from government to repair balance sheets need ultimately to be repaid. and monetary stimulus will need ultimately to be withdrawn. public policy can act as a balm for debt problems, not a long - run cure. so how severe might the hangover be once the painkillers have worn off? as a thought experiment, consider the impact on debt servicing costs of long - term interest rates reverting to a more normal level ( say, 5 % ) assuming debt levels remained as they are. at current mortgage spreads, uk households ’ long - term debt servicing costs would almost double relative to income, rising to over 13 %. 8 in other words, income gearing would be close to levels reached in the early 1990s recession. aggregate numbers may under - estimate the burden on deeply indebted households. around a third of uk households have debt servicing costs which exceed 20 % of income. for those households, debt servicing appears not to have fallen in the past two years, with higher mortgage spreads offsetting the effects of lower

andrew g haldane : the debt hangover speech by mr andrew g haldane, executive director, financial stability, bank of england, at a professional dinner, liverpool, 27 january 2010. * * * i am grateful to marnoch aston, simon brennan, john carmichael, geoff coppins, sebastiano daros, richard davies, john elliott, simon hall, salina ladha, jack mckeown, laura piscitelli and nick vause for comments and contributions. economists have not covered themselves in glory recently when it comes to forecasting. tonight i want to put that right by making a prediction that is big, bold and frighteningly precise. liverpool football club will finish this season third in the league. manchester united will top the table followed by arsenal. having been top for most of last year, chelsea will finish the season near the foot of the table. newcastle united, meanwhile, will finish fourth. i know what you are thinking. even by economists ’ standards, some of those predictions sound implausible. liverpool third? so let me explain. the season i have in mind is not the english football season ; it is the financial reporting season. and the table to which i refer is not the premiership points table ; it is the league table of english football club debt 1. rarely has securing a slot in the top four held less allure. debt is the subject of my talk tonight. we are living through an extraordinary period for the economic and financial system. events of recent years will be seen by financial historians as among the most significant in the past millennium. at the worst point of the crisis, savers and borrowers around the world came close to losing confidence in financial institutions. the resulting panic has had deep and long - lasting consequences for global activity. the statistics are striking. between july 2007 and march 2009, the equity prices of global banks fell by 75 %. that is a loss of market capitalisation of around $ 5 trillion. in the uk, banks ’ equity prices fell by over 80 %. taken alongside falls in other asset prices, the loss of global wealth peaked at over $ 25 trillion, or almost 45 % of global gdp. at that point, asset price falls in the uk and us were as large as during the great depression ( chart 1 ). knock - on effects to the real economy were no less dramatic. peak to trough, output in oecd economies has fallen by around 4 %. in the uk, output