the market for UK gilts, which the Bank of England has been issuing at a record pace this year to fund the government's spending and bank bail-outs. In good times, investors are happy to lend to the British government. Not any more.

Over the past two months, it has been reported, foreign investors have pulled out around three quarters of the money they invested in UK gilts over the past four years. Short-term gilts, which the government must repay within a couple of years, are trading at record high prices, while long-term gilts are at 30-year lows.

What this means is that confidence in the long-term future of the British economy is roughly where it was during James Callaghan's Winter of Discontent in 1978-79. Anyone who does lend, wants to be repaid quickly.

To return to the bankruptcy scenario, Britain now finds itself with a falling currency and low investor confidence. Anyone looking for a reserve currency other than the dollar or yen gravitates to the euro over sterling. Britain has to go the Argentina route and start offering higher interest rates to potential lenders simply to pay its interest bills.

Britain is suddenly unable to pay its bills or roll over its debts. It is bankrupt.

Meanwhile, the cost of crucial imports such as food and manufacturing goods soars owing to the crippled pound. Inflation takes hold. A financially cautious world wants nothing to do with Britain's key export, financial services. Foreign currency inflows stall.

The hedge funds and private equity firms which propped up London's economy either close up shop due to the lack of any credit or move to Geneva, where the crime level is lower and the tax regime more generous. Britain is suddenly unable to pay its bills or roll over its debts. It is bankrupt. The IMF, the EU, the Americans and the Saudis will have to come to the rescue.

How probable is all this? With nothing more than a finger in the air, I'd say 10 per cent and rising.