Friday, February 22, 2013

Thanks, austerity: Moody's downgrades UK's debts

Let's be very clear: this was not supposed to happen, according to conservatives and financial markets gurus. Great Britain embraced austerity -- it is still embracing austerity -- and yet Moody's has cut its credit rating to AA1.  So here is yet more evidence for those who still need it that national governments are not households, and the same rules do not necessarily apply.

Why?  Slashing public spending put the UK in a recession that -- get ready, Tea Partyers, this is the part that always gets you -- increased public debt. Here it is again, in case you missed it: slashing spending hurt the economy which increased debt:

“The main driver underpinning Moody’s decision to downgrade the UK’s government bond rating to Aa1 is the increasing clarity that, despite considerable structural economic strengths,” the Moody’s report reads, “the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector deleveraging process.”

The "ongoing deleveraging process" is business-speak for cutting one's debts. And there was an extra "f*** you" from Moody's after it cut the UK's bond rating:

“A combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the U.K.’s debt trajectory.”

In other words, Moody's said, "We think you're doing all the right things, and we hope that someday it will work out for you, but in the meantime it's not, so we're downgrading you."  

That's called "damned if you do, damned if you don't," folks. But if you want to know what the "confidence fairy" really believes, look at what she does (downgrading), not what she says (cheering on austerity).

One final note: the credit ratings agencies do not rate debt levels, they rate the ability to pay one's debts. They're not the same thing. In the U.S., we have a record-high national debt, ($7 trillion of it thanks to Dubya), and yet government spending to pay the interest on that debt is at a record low, thanks to record-low interest rates. 

By Jill Lawless
February 22, 2013 | AP

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