Sovereign debt bubble thread

[Iormlund]

Awesome.

Greek chief statistician charged for revealing true size of debt

[Admiral Yi]

 

[MadImmortalMan]

Moody's downgrades United Kingdom from AAA



NEW YORK (CNNMoney)
Rating agency Moody's stripped the United Kingdom of its AAA credit rating on Friday, making it the latest European country to face a downgrade amid the continent's grim growth prospects.

The U.K. was knocked down one notch to Aa1, with its ratings outlook at stable. Moody's said the key drivers of the downgrade included the country's rising debt burden and tepid growth outlook over the next few years.

"[A]lthough the UK's debt-servicing capacity remains very strong and very capable of withstanding further adverse economic and financial shocks, it does not at present possess the extraordinary resilience common to other Aaa-rated issuers," Moody's said.

A year ago, Moody's switched the outlook on the U.K.'s AAA rating to negative, in a prelude to Friday's downgrade. At the same time, the firm cut the ratings of half a dozen European countries.

Moody's

The key interrelated drivers of today's action are:

1. The continuing weakness in the UK's medium-term growth outlook, with a period of sluggish growth which Moody's now expects will extend into the second half of the decade;

2. The challenges that subdued medium-term growth prospects pose to the government's fiscal consolidation programme, which will now extend well into the next parliament;

3. And, as a consequence of the UK's high and rising debt burden, a deterioration in the shock-absorption capacity of the government's balance sheet, which is unlikely to reverse before 2016.

At the same time, Moody's explains that the UK's creditworthiness remains extremely high, rated at Aa1, because of the country's significant credit strengths. These include (i) a highly competitive, well-diversified economy; (ii) a strong track record of fiscal consolidation and a robust institutional structure; and (iii) a favourable debt structure, with supportive domestic demand for government debt, the longest average maturity structure (15 years) among all highly rated sovereigns globally and the resulting reduced interest rate risk on UK debt.

The stable outlook on the UK's Aa1 sovereign rating reflects Moody's expectation that a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the UK's debt trajectory. Moreover, although the UK's economy has considerable risk exposure through trade and financial linkages to a potential escalation in the euro area sovereign debt crisis, its contagion risk is mitigated by the flexibility afforded by the UK's independent monetary policy framework and sterling's global reserve currency status.

In a related rating action, Moody's has today also downgraded the ratings of the Bank of England to Aa1 from Aaa. The issuer's P-1 rating is unaffected by this rating action. The rating outlook for this entity is now also stable.


...snip

They got the BofE too.

[Razgovory]

Guess the Tory austerity program didn't work so well.

[Admiral Yi]

Guess not.  Better try jacking up the deficit and see if that does the trick.

[mongers]

Guess the Tory austerity program didn't work so well.

Yeah if I wasn't so involved I'd be laughing my ass off at the Con-Dem government; all of that grandstanding on the sidelines of Europe last year looks a lot less sensible now. 

The whole, we're so fine, oh look how bad Europe is doing, they really need to follow our policies has a greater hollow ring to it.

[Sheilbh]

Guess not.  Better try jacking up the deficit and see if that does the trick.

The deficit's increasing because of the failure of the government's economic policy.

Although this is exactly what the Tories want to do. Among other suggestions being pushed at the Chancellor are cutting corporation tax to 11% (to undercut the Irish by 1%), to eliminate capital gains tax and to eliminate the air passenger levy. Needless to say none of these suggestions include paying for these

[Zanza]

I don't understand why the Bank of England has a credit rating. Is it for them borrowing in foreign currencies or what?

[Admiral Yi]

The deficit's increasing because of the failure of the government's economic policy.

If more deficit spending is not the answer, what it?

[Sheilbh]

If more deficit spending is not the answer, what it?

More deficit spending is what we're getting, without any benefits.

In my view what would have been right is what Cable and Darling suggested. No protected budgets (the Tories won't cut the NHS or schools, or anything for the elderly, which is 50% of the welfare budget) so the cuts have a disproportionate effect because they fall very harshly on non-protected budgets. In addition the government should have protected capital spending - it's most likely to help growth - instead they really cut it in the first year because that's how you make easy savings. I'd also add that I think the frontloading of tax rises and capital cuts with backloading of spending cuts probably wasn't the best policy. And of course it could all be done at a deliberately slower pace (rather than being forced into a slower pace because of constantly failing to meet self-set targets). Also the Chancellor made this his overwhelming goal (austerity and maintaining the AAA rating), which means he can't have any nimbleness or shifts of policy without admitting political defeat. It was a mistake.

But this is where we are and I don't think there's much to do except to stick with it.

[Zanza]

And he is back ....

[Sheilbh]

[Iormlund]

Meanwhile in Spain, the former treasurer of the Popular Party -- whose "secret" books are at the center of the latest scandal implicating even Rajoy on corruption -- has sued the party for wrongful termination.

But the best part is the Popular Party's defense: our beloved government is openly stating both parts were engaged in a fraudulent relationship. That's its defense. 

[Iormlund]

In an astounding move, the bailout for Cyprus will include losses for depositors. What's even more shocking to me, those with more than € 100k won't see all that money gone first (they will just lose a little more).

The message this sends is clear: get your money out of the danger zone.

[Neil]

That's good news for Canada.  Europe is the danger zone, and the US is a crash just waiting to happen.