Pretty certain you’re misreading that quote so that it says what you want it to say.

FWIW, I’m concerned that the coalition is going too hard and too fast but the important part of what Moody’s says in this piece is that ‘fiscal stimuli are effectively no longer available’… this suggests they believe that the past use of fiscal stimuli has meant the cupboard is bare. NOT that cuts are themselves the cause of reducing their ‘distance to downgrade’.

Whether my reading is the right one is open to question, but what Moody’s is categorically not saying is that ‘debt stabilization’ as they call reducing the deficit is causing them to question AAA. In fact America, which has had no fiscal consolidation is pointed out as being behind the pack.

According to this report http://www.cmavision.com/news/view/cma-releases-sovereign-risk-report-for-q4-2009/ (CMA Global Sovereign Debt Risk Report, Dec 2009 .pdf download), we are already only AA, and stand at 39 from bottom of the pile. This means that the bond market sharks have to kill 38 countries before they get to us.
Never forget that the mighty credit rating agencies who allocate these ratings are the same idiots who allocated AAA ratings to the Toxic Assets. Infallible. Not.

Sunny,

Fiscal stimuli – creating new money in the economy – is not the same as increasing Government spending (if the government just spends the new money, it creates severe inflationary pressure).

Because the report only mentions fiscal stimuli, it cannot be reasonably extrapolated that it is referring to cuts, considering that all the countries named except the US, which is noted as different, are now clear they will not use further fiscal stimuli but I do not think are agreed on cutting spending. Therefore, I’d suggest the post heading is inaccurate – you could have ‘UK’s triple-A rating in trouble thanks to Government Fiscal Policy’ without much of a quibble though.

Mind you, I wonder what Moody’s would make of continued fiscal stimuli – I doubt they’d consider that a secure basis for maintaining a good credit rating either. Remember a challenge is not an automatic problem – I had an employer once who thought they were always opportunities…

Since most Tories seem to be in lala land with their fingers in their ears I am not sure if it is worth posting this. Oh well, here goes.

In February George Osborne announced his “New Economic Model” and said:

“And for the first time, the British people will have eight clear and transparent benchmarks – Benchmarks for Britain – against which they can judge the success or failure of their Chancellor and their government over the next Parliament. We will be accountable.“

And what was benchmark #1?

“We will safeguard Britain’s credit rating”

So if Britain loses its AAA credit rating, will Osborne be accountable? No I thought not either.

The tories are pushing through shock doctrine. Using their friends in the tory press they have convinced people that Britain is on a par with Zimbabwe . Therefore they can cut state spending, and welfare, (which they would have wanted to do anyway)

But worse they are getting to do it under the shield of Lib Dems cover. No wonder they can’t believe their luck that Cleggy has fallen hook line and sinker for it. No doubt if the drive the ecconomy over the cliff it will all be Labours fault.

While I HATE the current Tory economic policy, you’ve misread this.

They are saying that fiscal stimulus is unavailable, almost in the same way that the government are justifying these brutal cuts, i.e. ‘there’s no money left so we HAVE TO CUT NOW!!!’.

The real story behind this, is why are people using these ratings agencies as some kind of pariah? They mis-calcuated the financial crisis at an incredible level, and are using (in my opinion) a faulted view of the world economy. History proves Keynesianism to be right in terms of recession, as many leading economists (Stiglitz, Krugman) are advocating. Right now, growth is more important than fiscal austerity. As Keynes said, austerity should only take place in a boom (which it unfortunately didn’t).

While I probably agree with you about the poor policies of the current government, I’m afraid you cannot justify this headline.

I remember the last time the Tories were in power. By the end of their reign, they’d stopped blaming the last Labour government — they were blaming the next Labour government instead.

Sunny is right to suggest that cutting too quickly and too deeply can damage growth prospects and it is this which can undermine a sovereign rating. Damage your growth and the bond market will charge more to buy the debt.

‘…when fiscal stimuli are effectively no longer available…’

All Moody’s mean by this is that they recognise that fiscal stimulus is no longer politically feasible. They do not mean the cupboard is bare but merely the governments in power are not going down this route.

The benchmark 10-year gilt is yielding 2.88%, and CPI inflation is 3.1%, so there is no chance of the UK losing its triple AAA in the immediate future. The rating does matter because some debt buyers are only allowed to buy triple AAA securities. The rating agencies really just react to what has already happened in the underlying market so a downgrade when the yield was 2.88% would be absurd. The country is borrowing at zero cost.

In Tuesday’s news:

“The U.K. faces a ‘real risk’ of a second recession, Bank of England policy maker Martin Weale said, the London-based Times reported, citing an interview.

“The central bank’s latest economic forecasts, published on Aug. 11, are ‘putting a significant chance on the economy contracting over a four-quarter period,’ Weale said, according to the newspaper.”
http://www.bloomberg.com/news/2010-08-24/bank-of-england-s-weale-says-u-k-has-risk-of-new-recession-times-says.html

The real story behind this, is why are people using these ratings agencies as some kind of pariah? They mis-calcuated the financial crisis at an incredible level, and are using (in my opinion) a faulted view of the world economy.

James – that’s also true. I’m not a big fan of the credit ratings agencies. And while I take the point about lack of capital – they ARE still saying that our economic position could be weakened by the cuts.

Osbourn and Co said their measures would protect the triple A rating, so it should be protected if they say it will be, or don’t they really know what they are talking about and it is all based on hope?