December 3, 2007 (LPAC)--The British pound sterling interbank market has collapsed at the fastest rate in modern history, Daily Telegraph financial editor Ambrose Evans Pritchard wrote today. Things are so bad, that even the Milton Friedmanite monetarists are panicking and desperately demanding rate cuts by the Bank of England. "This is one hell of a shock to the financial system. A market that has taken 30 years to build has completely imploded in a matter of months. Lenders have been squeezed savagely. We've moved into a different era," The Telegraph quoted Friedmanite "economist" Prof. Tim Congdon of the London School of Economics saying. Total sterling assets have dropped by about half of a trillion pounds just from mid-August, from 3.244 trillion pounds to 2.876 trillion, according to data from the Office for National Statistics data. The volume of market loans in the banking system fell from 640 billion pounds in August to 249 billion pounds by end-September, showing that British banks have been hit even harder than U.S. banks, despite claims that the "subprime crisis" is a U.S. problem.

Even U.S. bank Morgan Stanley is warning about the British credit crunch, and advises clients to get away from Britain's debt-laden economy. Morgan Stanley warned that the FTSE -- London's leading stock market index -- could fall by 16% over the next year, and that house prices could go down 10%. The UK budget deficit is now near 3% (one of the worst in the OECD), and household spending is 97% of disposable income - as it was in 1988, before the last housing price wipe out in Britain.

Guardian economics editor Larry Elliott is even more blunt - he wrote today that a house price "free fall" could soon wipe 50,000 pounds - 25% -- from average house "values". Britain "has its own sub-prime time-bomb ticking away.... Things are going to get very nasty indeed."