The pound is plummeting against the dollar this morning as the markets continue to digest the implications of the latest U.K. bank bailout, but in an angry piece in today’s Daily Telegraph, Iain Martin implicitly (and explicitly) reminds readers that the roots of Britain’s crisis run far deeper than the current difficulties with the banks:

It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy. Unfortunately, the Treasury is pledged to honour those liabilities because it has guaranteed not to let a British bank go down. RBS has liabilities of £1.8 trillion, three times annual UK government spending, against assets of £1.9 trillion. But after the events of the past year, I wager most taxpayers will believe the true picture is worse. Meanwhile, the assets are falling in value. This matters, because post-nationalisation these liabilities are now yours and mine. And they come piled on top of the rocketing national debt, charitably put at £630 billion, or 43 per cent of GDP. The true figure is much higher because the Government has used off-balance sheet accounting to hide commitments such as PFI projects. Add to that record consumer indebtedness and Britain becomes extremely vulnerable. The markets have worked this out ahead of the politicians, as usual, and are wondering what to do next. If they decide our nation is a basket case, they will make it so. The PM and the Chancellor , both looking a year older every day, tell us that for their next trick they will buy more bank shares, create a giant insurance scheme for bad debt, pledge to honour liabilities without limit, cross their fingers and hope it all works. The phrase “bottomless pit” springs to mind for a reason: that is what they have designed.

Much praised and largely imaginary, the Blair/Brown economic miracle is finally now being seen for what it was. Smoke and mirrors.