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Thursday
May212009

In A Sign Of Things To Come For The United States: S&P Threatens To Slash Britain's AAA Rating

Smile, Gordon, becasue your debt is in the loo.

Spain, Portugal, Greece, Ireland and now perhaps Great Britain. Shit happens when your debt burden approaches 100% of GDP.  CDS prices on Gilts shot up; the pound was slaughtered and the FTSE is currently down 2.5%. Officially S&P lowered the outlook on the UK to 'negative' from stable.

Don't snicker; we are next.S&P put the United States on 5-year credit watch negative last Summer.  Trust me; with a $2.5 trillion deficit this year alone, (yes, it will be that large, as I wrote back in February when the projection was still at $1.3 trillion.) it won't take 5 years for our downgrade.

The story from Bloomberg is after the loop.

 

From Bloomberg:

Britain may lose its top-level credit rating at Standard & Poor’s for the first time as the government’s finances deteriorate amid the worst recession since World War II.

The outlook was lowered to “negative” from “stable” because of the nation’s increasing “debt burden,” S&P said in a statement today. The pound fell the most in almost a month against the dollar. Stocks and bonds slid, and the cost of insuring debt against default rose.

Britain would become the fifth western European Union nation to lose its rating because of the economic slump, following Ireland, Greece, Portugal and Spain. The U.K. plans to sell a record 220 billion pounds ($343 billion) of bonds in the fiscal year through March 2010 as the recession cuts revenue and forces the government to raise spending.

“We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100 percent of gross domestic product and remain near that level in the medium term,” S&P analysts led by David Beers in London, said in a report today.

The deficit this year will reach 175 billion pounds, or 12.4 percent of gross domestic product, Chancellor of the Exchequer Alistair Darling said on April 22. The government’s budget deficit increased to 8.5 billion pounds last month, the most for April since records began in 1993, the Office for National Statistics said in London today.

Gilt Spread Widens

The difference in yield, or spread, between U.K. 10-year bonds and equivalent German securities widened nine basis points to 24 basis points following the statement.

The FTSE 100 Index of stocks tumbled 2.52 percent, the most since March 30. The pound dropped 1.4 percent to $1.5535 and weakened 1.3 percent against the euro to 88.57 pence. Credit- default swaps on U.K. debt rose six basis points to 79.5, according to Deutsche Bank AG.

The British economy, the second largest in Europe, shrank 1.9 percent in the first quarter, the biggest contraction since 1979, when Margaret Thatcher became Prime Minister, the Office for National Statistics said on April 24. Darling said in his budget the economy will slump about 3.5 percent this year, before expanding in 2010.

Prime Minister Gordon Brown is boosting borrowing to pay for rescuing banks that have reported $121 billion in credit- related losses and writedowns since the start of 2007. The government pledged 40 billion pounds to refinance banks and hundreds of billions of pounds in loan guarantees.

Debt Purchases

The government gave the Bank of England authority to purchase as much as 150 billion pounds of assets with newly printed money in an attempt to lower borrowing costs.

Britain’s “balance sheet is deteriorating rapidly,” Moody’s Investors Service analysts led by Arnaud Mares in London wrote in a report on April 23. “The government is taking risks with public finances.”

Some reports indicated the economy’s downward spiral is slowing. Nationwide Building Society said April 30 house prices declined less than forecast in the month after posting a surprise increase in March. Consumer confidence climbed to the highest level in a year during April, GfK NOP said in a report the same day.

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Reader Comments (7)

May 21, 2009 at 6:48 AM | Registered CommenterDailyBail
Britain loosing it's credit rating is BIGGER than most realize.....the US can't be far behind with "Bennie & Timmaayyyy" printing and spending before the ink gets dry.
May 21, 2009 at 11:04 AM | Unregistered CommenterAin't Bullshittin'
What's going on with Treasurys? Yields spike up 15bps starting at 11:00 this morning. Gold up, too, starting at 11:00. (Stocks down.) Did I miss something?

Is our debt in the loo with Gordon Brown's?
May 21, 2009 at 1:04 PM | Unregistered CommenterJames H
Jobs numbers are a killer......Fed balance sheet numbers fan the inflation flame. CNBC has had wave of announcers questioning the jobs recovery, Britain and US questionable credit ratings, and Oh,.....the PPT's existence. Frankly....this market is Jekyll and Hyde. One day up...the next...down. No rhyme or reason because there are NO fundementals to under pin DOW 8,000. This whole thing is a farce and folks are just playing momentum trades. Long term "buy and hold" investing has been renamed "buy and PRAY". Gold and Oil have spiked because people are moving to get AWAY from the dollar as fast as they can. The handwriting is on the wall.....
May 21, 2009 at 2:10 PM | Unregistered CommenterAin't Bullshittin'
AB about covers it. That's a pretty good synopsis of where things are. And JH, thanks for the 'loo' correction. I should have looked that up before publishing.
May 21, 2009 at 2:25 PM | Registered CommenterDailyBail
May 21, 2009 at 2:26 PM | Registered CommenterDailyBail

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