I was in a discussion on email with some informed people today when this comment was made:
Fitch lowered its credit rating of UK government bonds from AA to AA- last week. The next step is A — which means that UK government bonds could not be bought by most of their current holders ( UK insurance companies and pension funds — and any charity. Many would be forced to sell as well — and we would find ourselves with a first order crisis of government funding overlaid on what is rapidly developing as a depression .
The idea that UK debt is AA- is absurd. Sovereign debt is the one asset that cannot fail to pay right now: the government can and always will pay, come what may, by issuing the cash to do so. And the queue for government debt is considerable: £45 billion will be sold this month without problem.
The rating agencies are, then, living on another planet far removed from reality, and are subscribing to an economic logic that is disconnected from the facts. If they do not appreciate that very soon my simple answer would be that the government rule that its debt is always investment grade and dispense with their services - after all, they pay for this nonsense; the agencies don't do it for free.
Of all the problems we face the risk that government debt is no longer investment grade is about the smallest: just as money can be created by a few keystrokes, so too can this be addressed with a few words in a statutory instrument, which is precisely what I'd be preparing if in the Treasury now.
The idea that a rating agency should now have leverage over the UK government when it is dealing with the biggest economic crisis in almost anyone's lifetime is quite absurd, most especially when it is recalled that these agencies were major contributors to the 2008 crisis because of the wholly inappropriate AAA ratings they gave to many of the mortgage-backed securities that crashed then, which shows how enormous their failing really are.
We can do without ratings agencies pontificating about government borrowing.
We cannot do without government borrowing.
What is going to give is fairly apparent in that case.
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Do you really think that UK government debt is going to be downgraded below BBB-, and therefore lose its investment grade status ?
That would be be disastrous.
You really need to continue this push for these independent agencies to be made illegal. Your idea of having the government tell investors what their credit rating is is a much better idea
For many purposes investment grade is lost before that
What is going to give? Well, in the past the government would have been shaking in its boots. We are all waiting for the day when the government or any sovereign government gives two fingers to these agencies and suggests they get on their bikes. I hope we don’t have to wait long.
Yes Richard not only did the rating agencies give triple A ratings to all the junk that they were paid to evaluate prior to the 2008 crisis, they did so without examining a single investment instrument.
Thank you, oh thank you.
So, a bunch of tossers who were giving out investment grade ratings to mortgage backed securities right up to the crash of 2008 feel that they have the nous to pronounce on the investment safety of British gilts?
When this lot were hauled before an American Congressional Committee after their last debacle (2008), they said that rather than making researched and informed ratings for investors, they were merely providers of ‘opinions’.
That’s right – ‘opinions’.
Well, my opinion of them is that that can all ‘eff off and do some real work instead – that’s all I can say of such people. We need to hasten their demise as the rating agencies have already shown how superfluous they really are.
This is Gold Standard thinking by primitive witch-doctors! 4000 years since money was invented and this nonsense is still believed by most UK voters. What exactly was the point of universal suffrage if voters are too lazy to make the effort to understand how this invention works, the lifeblood of our modern way of life! It’s very hard to accept you live amongst primitives especially now the witch-doctors have started up saying the coronavirus stimulus package has to be paid for with increased taxation and further austerity cuts. Just another re-run of the response to the 2008 GFC!
This is how stupid the rating agencies are:-
https://www.theguardian.com/business/2011/aug/08/us-treasury-bonds-shrug-off-downgrade
Politicians who are not aware of how this self-appointed oracle business got a kick up the proverbial have no business in office! Hello Keir Starmer are you listening!
After 2008 the Chinese became frustrated with the usual three agencies and decided to set up their own.
We should set up a new Rating Agency, based in London, offering its services worldwide which would help investors obtain a broader international viewpoint which could form a comparison with those which, unfortunately, work to a given agenda.
It is worth asking the old question “who guards the guards?”
One possible ray of sunshine Starmer has got rid of “Credit Card” McDonnell and replaced him with Anneliese Dodds although she doesn’t appear “re-constructed” still arguing for public sector investment because borrowing rates are low!
https://www.newstatesman.com/politics/economy/2020/01/boris-johnsons-economic-policy-all-slogans-no-reality
I have worked with Anneliese Dodds for a long time – since way back in her MEP days
I did not expect that much fo a promotion, but she gives me more hope than many of the options would have done, by some way
That’s great news, hope you can give us a full assessment tomorrow.
In what way?
Good! I hope she repays your confidence and for all our sakes.
Ignore my comment about assessment, as Helen says, I hope she repays your confidence. Keep up the excellent work Richard.
Is it democratic that a citizen should be expected to subscribe to the belief that their government has no money of its own as Margaret Thatcher argued especially in the current context when some of the deaths from coronavirus can be ascribed to ten years of Conservative Party austerity cuts implemented in a foolish attempt to balance the government’s books. Is it not a strengthening of democratic rights that a way should be found to implement a policy that those who subscribe to the Thatcherite belief should be asked to sign-up to a surcharge on taxes to help reduce government deficit spending?
Of course, there’s no chance such a policy I propose would be implemented but as a matter of human rights can the UK possibly consider itself to be a democratic nation when there’s no official publication describing how the nation creates its money (medium of exchange or currency) At the very least if it wants to consider itself a proper democracy it would establish an open and fully accessible Royal Commission to do this work with no final report released until there was fully reasoned consensus with all questions and objections addressed.
What do you think of this?
“Bank of England governor Andrew Bailey says he will not order printing money to fund a surge in Government spending amid coronavirus battle”
https://www.dailymail.co.uk/news/article-8189675/Bank-England-governor-not-order-printing-money-fund-surge-Government-spending.html
Comment coming
Here we go the establishment rushing to pull the wool over the nation’s eyes in the midst of a dreadful pandemic and its economic consequences. Here’s Andrew Bailey saying the BoE creation of reserves has to be “sustainable!” This is a mealy mouthed, drive a coach and horses through it, kind of word. What does it mean? Was ten years of under-funding the NHS and pandemic prevention resources “sustainable?” This is the deliberate choice of a “shallow platitude” word which is code for the “housewife’s budget approach” to running a nation. Even Mario Draghi stopped talking such rubbish:-
https://www.bloomberg.com/news/articles/2019-09-23/draghi-says-ecb-should-examine-new-ideas-like-mmt
What hope is there for this country when voters will be swallowing this right-wing tripe?