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Britain "within A Whisker Of Losing Its Triple A Credit Rating"

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http://blogs.telegraph.co.uk/finance/jerem...-credit-rating/

Can Britain afford the massive increase in sovereign debt it is clocking up in paying for the structural deficit and the recession? Only just, assumptions used by the Treasury in drawing up its forecasts for the public finances reveal. It could swing either way.

One of the most striking features of confidential Treasury papers leaked last week to the Tories was the projected growth in the numbers for debt interest. This is assumed to rise from “just†£27.2bn this financial year to a staggering £63.7bn by 2013/14, or from 5.4 per cent of government receipts to 9.6 per cent. Put another way, nearly 10 per cent of everything the Government receives in taxes and other forms of income will soon be consumed servicing the national debt, which means less money for everything else.

In itself this might seem bad enough, but the reason it is of more than purely shock significance is that 10 per cent is one of the key trigger points used by Moody’s, the credit rating agency, for assessing whether triple A rated countries are vulnerable to a downgrade (see graphic).

Anything between 10 and 12.5 per cent is regarded as the danger zone. Once through that, you are at the point of no return. Even the UK Treasury’s own internal assumptions place Britain just shy of the vulnerability threshold. Admittedly, most long term assumptions on income and expenditure in the public finances need to be taken with a pinch of salt. Forecasting beyond the immediate future is a largely futile business. Some assumptions are going to prove hopelessly optimistic, others far too pessimistic.

None the less, the numbers give obvious cause for concern. It needs only something to go slightly awry for Britain to enter the Moody’s danger zone, for a downgrade to be enforced, for the cost of debt to become consequently more expensive, and for the problem of compounding interest to become a reality.

Again, I should emphasise, that this is not yet judged by anyone to be a likely outcome, but it does underline the urgency of addressing the road crash in the public finances. Gordon Brown, the British prime minister, wants a global “compact†from G20 leaders at next weekend’s Pittsburgh summit not to withdraw their fiscal stimulus for at least the next two years. Small wonder. In staying beneath the 10 per cent debt affordability ceiling, the Treasury assumes a considerable rebound in economic growth the year after next. But what if it doesn’t happen? You can argue it both ways. Growth may be the best solution to the burgeoning budget deficit. But even with persistent fiscal stimulus, that growth is by no means assured, and if it doesn’t come, the sovereign debt problem will be that much worse.

For the time being, Britain’s triple A rating looks secure, but then credit rating agencies are often a long way behind the curve on these matters. A triple A rating was maintained on many “collateralised debt obligations†right up to the moment they became junk. Standard & Poor’s has already warned of the possibility of moving to negative outlook if more isn’t done immediately after the election in the way of fiscal consolidation. The other two main agencies, Moody’s and Fitch, have proved more accommodating, but the lights are flashing amber even from them.

Couldn't get to copy the graph but luckily the giant squid says all will be fine so it will all be OK.

Luckily this can only mean house prices will recovery to pay for all of this. We won't lose our triple A rating we've got Ponzi Brown in charge who's doing all he can to help our hard working families.

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http://blogs.telegraph.co.uk/finance/jerem...-credit-rating/

Couldn't get to copy the graph but luckily the giant squid says all will be fine so it will all be OK.

Luckily this can only mean house prices will recovery to pay for all of this. We won't lose our triple A rating we've got Ponzi Brown in charge who's doing all he can to help our hard working families.

really does anyone take any notice of these ratings anymore - apart from the FSA

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Sovvereign credit ratings are skewed for the west .. the ratings agencies dare not downgrade UK & the US .. its a question of their existence as well..

There is no justification for any economy having to print money and retain a AAA rating .. think about it .. would you hand over your hard earned money as a loan to some chappie who paid you back with forged notes ?

Its theivery from the rest of the world..

Edited by moneyfornothing

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Why should a sovereign country pay interest on its own debt?

Surely theres a way of not borrowing from the private banks. We let them print it/we print it - why should we pay interest back to them?

'snot fair

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http://blogs.telegraph.co.uk/finance/jerem...-credit-rating/

Couldn't get to copy the graph but luckily the giant squid says all will be fine so it will all be OK.

Luckily this can only mean house prices will recovery to pay for all of this. We won't lose our triple A rating we've got Ponzi Brown in charge who's doing all he can to help our hard working families.

"Britain "within A Whisker Of Losing Its Triple A Credit Rating"

Opinions differ

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If the credit rating is meant to reflect the likelihood of the UK defaulting on Sterling denominated debt then it will always be top. There is no way the country will become so impoverished as to be unable to afford a computer that can generate an amount of money with the required number of zeros at the end. Eurozone countries cannot do that, so their ratings can go down as well as right down.

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States can extract from their citizens to pay their debts.

But

How does a state without any AAA rated companies to nick from have a AAA rating itself?

Very odd, like an unstoppable mugger being thought good for the money when all his potential victims are skint.

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