Oh, this is a shocker from Moody's, especially considering this update on our outrageous deficit spending for FY 2010.
Sovereign debt default is the new, new black. First Dubai, then Greece, Spain, eventually the UK, the U.S. and Japan. It might take 15 years to see it play out, but rest assured it will happen. Hide the children, because deflation is a killer.
A very real conversation from the bowels of the Fed:
- "Printing presses at the ready, add the green ink. Mr. Bernanke do we have your 'ok' to commence printing?"
Bernanke responds:
- "Press the button for 'multi-trillions', we're going to need it. Hello, Tokyo, this is Ben."
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Dec. 8 (Bloomberg) -- Moody’s Investors Service said the top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because public finances are worsening in the wake of the global financial crisis.
“The deterioration has been pretty severe,” said Pierre Cailleteau, managing director of sovereign risk at Moody’s, in a Bloomberg Television interview in London. “We expect a pretty strong policy response in the next couple of years in order to keep the debt in the Aaa range. We expect them to bend but not to break.”
The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, Moody’s analysts led by Cailleteau said in a report today. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.
The U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent, the Organization for Economic Cooperation and Development forecast in June. National debt in the U.S. climbed to $7.17 trillion in November. The U.K.’s public debt will swell to 89.3 percent of the economy in 2010 from 75.3 percent this year, according to the OECD.
“There has been a huge increase in debt-to-gross-domestic- product ratios as a result of the crisis,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s right that there should be a lot of attention and pressure on these numbers.”
“The U.K.’s fundamentals are dismal and don’t support the ratings,” said Mark Schofield, head of interest-rate strategy in London at Citigroup Inc. “Only if some pretty draconian fiscal measures are in place will the U.K. keep hold of its Aaa rating.”
British Chancellor of the Exchequer Alistair Darling said yesterday that he would rather suffer criticism for removing support for the economy too late than too early, signaling he will put off measures to reduce Britain’s biggest budget deficit since World War II.
“I do think we need to make a determined effort to get our debt down,” Darling said. “I would rather be found guilty of removing the support slightly too late than slightly too early.”
The U.K. and the U.S. have “lost altitude” in their ratings even as they remain resilient, Moody’s said in the report.
Continue reading at Bloomberg >>
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