Britain loses AAA rating in Moody's downgrade

Cameron's austerity program is to blame, clearly. When GDP slows, you've gotta spend and print more money. Austerity never works for countries with their own currencies.

When GDP slows, you've gotta spend and print more money.

Historically speaking it never works that way. In numerous situations, including the current situation in the US and other western countries, it's arguable that stimulus spending may have extended the problems that led to the slow down in the first place. Poorly written legislation, cronyism, and the sick relationships between business and politics remain unchanged and in some cases it's even deepened.

If you want government to provide services at least force them to figure out how to provide those services with the money they are given through taxes. The more jobs you allow them to do, however, the more likely they are to muck things up.

" . When GDP slows, you've gotta spend and print more money."

100% WRONG! How many times must that boneheaded approach be attempted with the same failed result before people learn? How did Einstein define insanity again?

Here we go........

Moody's become moody and pulling everybody down with low ratings.

Regardless of what you think of Moody's, this is could be the third downturn for Britain in 3 years, a triple dip. So how can you argue that austerity is positive in any way?

TheQuestion/ Surf O'Holic, unfortunately, and challenging your points of view, Osborne and Cameron are living proof that austerity and doom-and-gloom economics do not provide recovery or a way out of recession. I'm living here in the UK and it is awful here. The Moodys downgrade was way overdue.

You have to stimulate taxes and create a larger budget pot through fuller employment and consumer spending. Freezing salaries, cutting jobs, restricting consumer spending, shackling businesses. That will never pull you out of recovery. If you are unemployed or can only find part-time work how will that increase the tax pot? If your salary has been frozen for 3 years yet your utility bills increase every year then how can you put savings aside?

This is now a triple-dip recession in the UK and Osborne is a total failure. Austerity is fine for two budget years maximum. This is now 3 years.

Historically speaking it never works that way.

LOL. It's "works that way" right now. Countries with austerity programs, like Greece and Spain, are in a downward spiral expected to continue indefinitely. Countries that reacted to the crisis by spending, like Norway, are performing brilliantly. Norway's recovery came early on in 2009, after plenty of stimulus.

As for Japan, all it has do is merely announce more spending and money printing, and the economic indicators suddenly point upward. The markets love it, because they know it means better economic times ahead. The austerity countries, meanwhile, remain mired in depression, and will continue to do so.

Well, here we are, in the global sense. The question should be "how did we get here?".

I agree with tigertokyodome's " The Moodys downgrade was way overdue."

Yes, by at least a decade overdue. And that's not only for UK, but US and others as well. We are here thanks to the boneheaded policies promulgated by the dunce-in-chief JMK and his parrots.

Productivity cannot be wished into existence: there's only so much crap that can be regurgitated around. Historically, at this stage, the only sure path to prosperity has been large-scale depopulation and/or war. Frankly, most developed countries are saturated. Barring war or other depopulation events, the only countries with potential to advance are those with (artificially or culturally) depressed consumption & production. Those who have overextended themselves (eg: Britain) are, well, overextended. Oh well.

Osborne and Cameron are living proof that austerity and doom-and-gloom economics do not provide recovery or a way out of recession. I'm living here in the UK and it is awful here.

I didn't say austerity would make things better, I said that spending wouldn't. For the economy of any nation to return to prosperity the heavy lifting must be done by the private sector economy which requires allowing markets to dictate the borrowing rates and not flooding the industry with artificially low credit. Public sector spending is a sedative and only serves to distract the people from the hard work that needs doing, that means saving and that means not looking to the government for every single little thing.

You have to stimulate taxes and create a larger budget pot through fuller employment and consumer spending. Freezing salaries, cutting jobs, restricting consumer spending, shackling businesses. That will never pull you out of recovery. If you are unemployed or can only find part-time work how will that increase the tax pot? If your salary has been frozen for 3 years yet your utility bills increase every year then how can you put savings aside?

They already tried that approach and it backfired spectacularly in the US. Artificially injecting money into the economy just creates bubbles which eventually burst, taking all the gains with them and creating manufactured crisis after manufactured crisis. Thats exactly what happened with the housing market collapses of the US and Spain and exactly what will happen again.

It's "works that way" right now. Countries with austerity programs, like Greece and Spain, are in a downward spiral expected to continue indefinitely. Countries that reacted to the crisis by spending, like Norway, are performing brilliantly. Norway's recovery came early on in 2009, after plenty of stimulus.

Using Scandinavian countries as an example for anything is getting old, most economies function nothing like them because they have a very unique circumstance of having a very high level of technology, a very low level of foreign entanglements, and relatively small homogeneous populations. The dip in the Norwegian economy was nothing compared to the recessions in Europe or even the US and what you call 'plenty of stimulus' was a slight uptick in spending used for infrastructure projects that they were planning on doing anyway and only amounted to a little over 2 billion USD. Money that it had to spend, by the way, because they had a surplus from oil drilling operations that most countries don't have the benefit of.

As for Japan, all it has do is merely announce more spending and money printing, and the economic indicators suddenly point upward. The markets love it, because they know it means better economic times ahead. The austerity countries, meanwhile, remain mired in depression, and will continue to do so.

You're thinking exactly like the Eurozone leaders, short term gains and long term folly. Those sudden upward indicators pale in comparison to long term lagging ones that have been draining the strength from economies that employ such short sighted gambits for nearly a decade now. The upticks become smaller and smaller and the long term trends are becoming increasingly difficult to ignore.

" Osborne and Cameron are living proof that austerity and doom-and-gloom economics do not provide recovery or a way out of recession. I'm living here in the UK and it is awful here."

I'm sorry for your discomfort, but it's going to get much worse before it gets better.

First of all, the current marginal austerity is not the cause. That distinction goes to the decades of profligacy, making Thatcher's words on socialism painfully poignant at this point.

Don't write a checque your duff can't cash.

On the other hand you do hear people with their own businesses in Britain saying things are looking better. I just heard two such comments yesterday.

An outright failure. Cameron and Osborne are bound together in a failure that will continue to see borrowing rise as growth flatlines. Cameron cannot fire his chum without a politically lethal loss of face. Nor can they deviate from the austerity program without an election-losing u-turn. Expect 2 more years of this at least unless the Lib Dems can grow a backbone and refuse to be the junior party in this car crash.

The government are obsessed with growth, but perpetual growth is impossible. They should be trying much harder to balance the books, but they continue to waste money in so many ways.

Some measures that could be taken include: withdraw from all overseas wars, cancel nuclear weapons programs, force all businesses to pay a reasonable amount in taxes, pay no benefits to those who haven't contributed through taxes, end rail franchising, end PFI contracts, stop subsidising wind power, cap council salaries at GBP 100000, cap public sector defined-benefit pensions.

These measures would save tens of billions of pounds per year, yet they do nothing. They are not serious about restoring the finances, preferring instead to print vast sums of money. This is the reason they have lost the AAA rating.

You're thinking exactly like the Eurozone leaders

Bizarre logic. The Eurozone leaders were the ones that imposed the austerity that I'm railing against.

Those sudden upward indicators pale in comparison to long term lagging ones.

For the past 15 years, Japan's GDP per capita has outpaced most other developed countries, thanks largely to massive public spending and 13 years of QE. True, Japan's aggregate output doesn't grow but that's because its population is decreasing, meanwhile the real standard of living -- the ultimate bottom line -- continues to rise.

As Dick Cheney said: "Deficits don't matter" (when you're not indebted to foreigners and can print your own money.)

By the way, whatever happened to all those old predictions that Japan would collapse from all its debt? It hasn't happened, and it ain't gonna happen, so no need for austerity here, that's for sure.

Despite Moody's statement (although I agree with their decision), the UK does have significant structural hurdles:

Financial services dependency: The UK is the archetypal service economy, with financial services and banking making up the bulk of private sector services. In good time, it fills London's coffers; in bad times, we see news like this.

EU dependency. Despite its persistent protests, the UK is deeply coupled to the EU, and intra-EU/eurozone problems invariably affect the UK. For example, ~40% of euro transactions are through London; therefore the past three years of the eurozone crisis have disproportionately stung Britian in euro financial business. It also harms trade of the UK's manufactured goods and non-financial private sector services, half of which go into the EU.

Cameron's recent trip to India is meant to begin correcting the trade problem by decoupling Britain's trade dependency with the EU for more dynamic economies outside the EU, and particulary with the Commonwealth.

Austerity and exchange rate. The UK has been duped into deficit reduction because of the ongoing eurozone crisis; so long as there is fiscal retrenchment in the eurozone, it is politically unseemly to be seen spending too much. Additionally, the pound sterling is an expensive currency; even after today's meltdown, the rate is GBP/JPY 1:141.6.

To spur economic growth, this is a time when both fiscal and monetary policy should be expansionary. Instead of targeting inflation or unemployment like the Federal Reserve, ECB or JCB, inflation-adjusted investment-function-of-GDP growth should be targeted. The Treasury, through BoE financing, needs to set-up a special development vehicle for manifacturing and industrial, non-residential construction. This will have the added benefit of weakening the currency to encourage exports and when the target is met, both the SPV and QE financing can be halted, with the financing returned as improved tax receipts and improved sovereign fiscal outlook.

To paraphrase one of my favorite posters on this site:

How can this be? Hasn't Britain been rigorously following the austerity schedule?

For all the hand-wringing in the US, America leads the way in recovery of industrialized countries - and would be doing better if not for GOP intransigence. Austerity is for boom times, not for recessions.

Bizarre logic. The Eurozone leaders were the ones that imposed the austerity that I'm railing against.

You haven't even experienced austerity, nobody has. There have been decreases in spending increases but budgets have continued to expand throughout the crisis in spite of these so called austerity measures. Europe can't spend its way out of an noncompetitive work force nor can it spend its way off of unsustainable retirement and entitlement programs.

For the past 15 years, Japan's GDP per capita has outpaced most other developed countries, thanks largely to massive public spending and 13 years of QE. True, Japan's aggregate output doesn't grow but that's because its population is decreasing, meanwhile the real standard of living -- the ultimate bottom line -- continues to rise.

Japan's debt is saddled in different sectors that cause different problems down the road but that would, once again, force you to think farther down the line than the next 3 years which is where most of Europe remains locked. They are literally living quarter to quarter and in the case of Greece stimulus check to stimulus check. They need radical restructuring in their spending practices to put it mildly and that means reducing services to rates their governments can actually afford.

As Dick Cheney said: "Deficits don't matter" (when you're not indebted to foreigners and can print your own money.)

Dick Cheney is a grumpy old politician that spent most of his career existing in an economic environment in which the US was making so much money that short term deficits paled in comparison to long term running surpluses, at the current rate of spending expansion, however, the deficit becomes unsustainable.

By the way, whatever happened to all those old predictions that Japan would collapse from all its debt? It hasn't happened, and it ain't gonna happen, so no need for austerity here, that's for sure.

In 2012 Finch downgraded Japanese debt by two levels and Moody cut it back in 2011 to reflect the growing uncertainty by investors on Japans long term ability to pay its debts.

" For all the hand-wringing in the US, America leads the way in recovery of industrialized countries - and would be doing better if not for GOP intransigence. Austerity is for boom times, not for recessions."

Ha! What comedy! Perhaps you should write for Monty Python!

GOP intransience, that's hilarious! Thanks for the ludicrous guffaw!

How many institutions have now lost their AAA rating in Moody's downgradings?

GOP intransience, that's hilarious! Thanks for the ludicrous guffaw!

Thanks,Surf O'Holic - I'd never considered a "guffaw" to be "ludicrous," but I'll do my best!

Certainly, comedy abounds in American politics - such as the "Defense Keynesians" - those who cry that cuts to the defense budget will harm the economy, but save no such tears to any other program. Boehner claims regarding Sequestration - that it is a very, very bad idea that came straight from Obama and that we're going to do anyway because - well, because (he'd be deposed as Speaker if he took a step towards closing tax loopholes) is also very funny.

It is funny that some economic circles advocate a certain course, and the countries which take this course do very badly, so these economists double-down and advocate a stronger implementation of this course, which these countries accept as normal - while those which do not accept this course are doing much better - yet, all the while, these economists are saying that they will not do so well at some time in the future if they do not implement the very remedies that have hobbled their subscribers. This is hilarious.

"Monty Python" - Great Britain and Spain are doing the "funny walk" straight off the pier. Humor has never been the strong point of economists - but then, economics has also never been the strong point of jokers.

So, let me get this right, the UK is now up there with Cambodia and Bangladesh in it's credit ratings??

Unless UK starts up a local currency not for global trade will they be able to get out of their slump without interference from the slump in world markets. I don't doubt countries in harsher debts would have to do the same at some point.

It just seems already designed as such with Pound and the Euro competing. Might as well keep the Pound local and leave the Euro crashing

Similarly there's little incentive for Germany to keep the Euro rather than just going back to the DM.

elbud:

So, let me get this right, the UK is now up there with Cambodia and Bangladesh in it's credit ratings??

Not really. Bangladesh is Ba3 and Cambodia is B2, so Mexico's rating is closer to these.

Pukey, please do not take it as an offense, I was just sure somebody would start comparing the UK to the 3 rd world, etc..maybe they are just getting deleted, but anyway, does anybody really care about Moodys??

You haven't even experienced austerity, nobody has

Yes, I have. When I graduated from university, the jobless rate in my local economy was 12-15 percent due to what the gov't of the day called "belt tightening." That's why I went to Japan. I wasn't alone. The local area lost a huge slice of its most productive demographic. Austerity Ireland is now facing the same problem, as its young workers flee.

Japan's debt is saddled in different sectors

Japan is the world's biggest creditor nation. It's also been running trade surpluses throughout the postwar period. Japan is in fact one of the least indebted societies on earth. Debt to GDP is only one of several metrics, and it's not a good one, either. You might want to ask why global investors saw the yen as a "safe haven."

In 2012 Finch downgraded Japanese debt by two levels and Moody cut it back

Yeah, when the DPJ was in power, and vowing to cut gov't spending. The BOJ had also curtailed much of its QE. But now that massive spending and money printing have been pledged, the markets are giving Japan the thumbs up. Japanese equity has been on fire since January.

" Japanese equity has been on fire since January."

A flash in the pan.

By all accounts the downgrade was foreseen and has already been discounted in the UK. It seems it will make little difference to inward investment but might cause further belt tightening in the public sector. It seems there's little chance of the UK failing to pay its creditors which is essentially what the rating is supposed to predict. So.....more of the same really.