Britain loses its triple A credit rating as pound plunges

[Ricardo]

I think I'd rather that the UK-government were paying-off the national-debt, given that there's no life-threatening world-war to justify the state borrowing & spending, instead of borrowing more (at whatever interest-rates) to maintain unaffordable living-standards.

I particularly disapprove of the way the North Sea Oil benefits have been blown, by governments of both hues, on a long-running current-spending boom.

This is a relatively recent trend, borrowing from the future to boost current social-spending, for hundreds of years we (and the USA, its not just the UK) only borrowed significantly when the continued existence of the state was in jeapardy ! What will the younger voters say, when they realise that we've mortgaged their futures, to make our own lives more comfortable ?

I voted with my feet and moved offshore financially over a decade ago, nothing which has happened since then has made me think I was wrong, in my assessment of the future in the UK (and indeed Europe).

Oh and making finance cheaper for industry to invest does make sense, as you say in the previous post, but only if the money isn't syphoned-off into bankers' bonuses or fat-cat CEOs share-options or higher-dividends, which in my view is where much of it has gone.

Those bigger companies are also now paying far less tax, than in the old days, thanks to dodgy accounting & complaisant (whatever they say ... look at what they do instead) politicians, or 'a lighter regulatory hand' as they prefer to put it !

[ilostmypassword]

I think I'd rather that the UK-government were paying-off the national-debt, given that there's no life-threatening world-war to justify the state borrowing & spending, instead of borrowing more (at whatever interest-rates) to maintain unaffordable living-standards.

I particularly disapprove of the way the North Sea Oil benefits have been blown, by governments of both hues, on a long-running current-spending boom.

This is a relatively recent trend, borrowing from the future to boost current social-spending, for hundreds of years we (and the USA, its not just the UK) only borrowed significantly when the continued existence of the state was in jeapardy ! What will the younger voters say, when they realise that we've mortgaged their futures, to make our own lives more comfortable ?

I voted with my feet and moved offshore financially over a decade ago, nothing which has happened since then has made me think I was wrong, in my assessment of the future in the UK (and indeed Europe).

Oh and making finance cheaper for industry to invest does make sense, as you say in the previous post, but only if the money isn't syphoned-off into bankers' bonuses or fat-cat CEOs share-options or higher-dividends, which in my view is where much of it has gone.

Those bigger companies are also now paying far less tax, than in the old days, thanks to dodgy accounting & complaisant (whatever they say ... look at what they do instead) politicians, or 'a lighter regulatory hand' as they prefer to put it !

Actually, they're paying less taxes because the Tories cut the tax rates for the wealthy. Supposedly that was to stimulate the economy. In an era of very cheap credit, that argument makes absolutely no sense.

[Ricardo]

I would recommend "Treasure Islands ... tax havens and the men who stole the world" by Nicholas Shaxson, or " The Great Tax Robbery : How Britain Became a Tax Haven for Fat Cats and Big Business" by Richard Brooks, both make worrying but interesting reading.

[MissAndry]

... my elderly mother has GBP200k in fairly-liquid Building-Society accounts, which earn her less than a grand a year !

If she's elderly, forget the interest, divide by 20 and spend it.

Why spend 1k a year and have 200k in the bank when you die, spend 10k a year until you die or it's gone.

[ilostmypassword]

Just consider the government ponzi-scheme which is the pension-system, and their current spending-deficit, social-systems which are simply unaffordable.

Meanwhile bank-shares are crashing, what does that say about their finances ?

And the Public Finance Initiative rolls ever onwards, putting a 30-year millstone round the necks of the NHS & education-authorities & so on, the tax-dodging major-companies continue to be allowed to get away with it, it's a mess.

How will the national-debt ever be repaid, as it should have been, while the North Sea Oil bonus flowed ?

AA is a generous assessment IMO.

the current interest rate on gilts (UK bonds) is .4%. Clearly the markets disagree with you.

The rates in general are all low. The credit rating - even now that it has been "slashed" (cough cough) is not exactly anywhere near junk bond status. the cutting of the rate is just saying, the UK is going in the wrong direction (i.e. up to 90%+ of GDP and heading into recession; was 50% not long ago). It is a warning for the UK to get it's books in order sooner rather than later.

I think you're confused. Cutting the lending rate is a way to stimulate the economy because you want to encourage business investment. I think rates are so low now, that it won't make a difference. But cutting interest on bonds because you can sell them at a lower rate means investors have confidence that they will be paid back and that the economy won't be going into an inflationary spiral. It's important to remember that the UK sells bonds in its own currency so it's not subject to the straitjacket effects of the Euro.

[Ricardo]

... my elderly mother has GBP200k in fairly-liquid Building-Society accounts, which earn her less than a grand a year !

If she's elderly, forget the interest, divide by 20 and spend it.

Why spend 1k a year and have 200k in the bank when you die, spend 10k a year until you die or it's gone.

You or I would do this of course, but she is 86-years-old, and this is anyway merely her emergency-money to cover nursing-expenses or other minor things, which might crop up. It's a reassurance thing, not at all a rational investment-decision, to keep this part of her assets in cash or readily-available accounts.

But it does underline the lousy deal, which those who've scrimped & saved all their lives, are now getting for their savings. That's why I mentioned it. And i don't regard this as a sign of a good economic-situation, the government claims to want to see people saving for retirement, but then offers worryingly-low returns to reward them.

[NeverSure]

... my elderly mother has GBP200k in fairly-liquid Building-Society accounts, which earn her less than a grand a year !

If she's elderly, forget the interest, divide by 20 and spend it.

Why spend 1k a year and have 200k in the bank when you die, spend 10k a year until you die or it's gone.

You or I would do this of course, but she is 86-years-old, and this is anyway merely her emergency-money to cover nursing-expenses or other minor things, which might crop up. It's a reassurance thing, not at all a rational investment-decision, to keep this part of her assets in cash or readily-available accounts.

But it does underline the lousy deal, which those who've scrimped & saved all their lives, are now getting for their savings. That's why I mentioned it. And i don't regard this as a sign of a good economic-situation, the government claims to want to see people saving for retirement, but then offers worryingly-low returns to reward them.

It is very hard for retired people to spend their savings. They know they won't work again, times are uncertain, and many die with a lot of money in the bank after years of still saving in retirement. Many truly older people have seen really bad times too such as rationing and WWII. If not their parents did and instilled ideas in them.

The UK will do fine. Trading will continue. Germany isn't going to want to stop selling cars to the UK and in return they'll have to accept imports. The UK has one of the world's largest economies. No one will refuse to do biz with the UK. The UK can broaden its sights and trade more with the US and other countries.

It's the EU that's in trouble, not the UK, and the UK is stronger out, not supporting the losers in the group and not being "ruled".

Cheers.

[bkkcanuck8]

It is very hard for retired people to spend their savings. They know they won't work again, times are uncertain, and many die with a lot of money in the bank after years of still saving in retirement. Many truly older people have seen really bad times too such as rationing and WWII. If not their parents did and instilled ideas in them.

The UK will do fine. Trading will continue. Germany isn't going to want to stop selling cars to the UK and in return they'll have to accept imports. The UK has one of the world's largest economies. No one will refuse to do biz with the UK. The UK can broaden its sights and trade more with the US and other countries.

It's the EU that's in trouble, not the UK, and the UK is stronger out, not supporting the losers in the group and not being "ruled".

Cheers.

Not to mention if you have been frugal your whole life -- you probably have a set mindset that is very hard to change and basically you see no reason to change. You are quite comfortable with not spending money on things you view as frivolous and that pretty well is everything. If you went out and tried to spend the money on stuff just because you figure it fits your budget -- it would make you any happier, in fact it may even make you less happy since what you have grown use to -- and all that you really enjoy is your hobbies, your family... and not spending it is not a waste since it will still be there to help your grandkids go to school or something. My grandmother was very much like that... she had an extremely small pension that most would not be able to live on, she relied on staying 6 months at her sons house, and 6 month at her daughters house in a warmer location and back again and even though the money was basically nothing.... she was still saving more than spending.

Many people have spouted off about how everything is going to end and they are preparing for a trade war. The absolute worst that will happen is that they will have a normal trading relationship and the economies will have to adjust. I mean, Canada has not had a trade war for the last 43 years with the EU.... just a normal trading relationship. Things will adjust -- and things will continue. People might complain about what they see as poor growth, or longer recessions during that part of the cycle as the economies restructure - but the world will not end and people would have complained anyways.... Even them people's view is not necessarily objective, so it is hard to draw a direct conclusion that it is or it is not the change in trading relationship....

Most things flow back and forth tariff free -- just certain parts of the economy will suffer more than others. Just because both parties might benefit from a special trading relationship does not mean that the political will to close a deal is there.... if there was.... some of the nagging issues with irritating and stupid regulations would have not been still an issue.

[MJP]

It is very hard for retired people to spend their savings. They know they won't work again, times are uncertain, and many die with a lot of money in the bank after years of still saving in retirement. Many truly older people have seen really bad times too such as rationing and WWII. If not their parents did and instilled ideas in them.

The UK will do fine. Trading will continue. Germany isn't going to want to stop selling cars to the UK and in return they'll have to accept imports. The UK has one of the world's largest economies. No one will refuse to do biz with the UK. The UK can broaden its sights and trade more with the US and other countries.

It's the EU that's in trouble, not the UK, and the UK is stronger out, not supporting the losers in the group and not being "ruled".

Cheers.

Not to mention if you have been frugal your whole life -- you probably have a set mindset that is very hard to change and basically you see no reason to change. You are quite comfortable with not spending money on things you view as frivolous and that pretty well is everything. If you went out and tried to spend the money on stuff just because you figure it fits your budget -- it would make you any happier, in fact it may even make you less happy since what you have grown use to -- and all that you really enjoy is your hobbies, your family... and not spending it is not a waste since it will still be there to help your grandkids go to school or something. My grandmother was very much like that... she had an extremely small pension that most would not be able to live on, she relied on staying 6 months at her sons house, and 6 month at her daughters house in a warmer location and back again and even though the money was basically nothing.... she was still saving more than spending.

Many people have spouted off about how everything is going to end and they are preparing for a trade war. The absolute worst that will happen is that they will have a normal trading relationship and the economies will have to adjust. I mean, Canada has not had a trade war for the last 43 years with the EU.... just a normal trading relationship. Things will adjust -- and things will continue. People might complain about what they see as poor growth, or longer recessions during that part of the cycle as the economies restructure - but the world will not end and people would have complained anyways.... Even them people's view is not necessarily objective, so it is hard to draw a direct conclusion that it is or it is not the change in trading relationship....

Most things flow back and forth tariff free -- just certain parts of the economy will suffer more than others. Just because both parties might benefit from a special trading relationship does not mean that the political will to close a deal is there.... if there was.... some of the nagging issues with irritating and stupid regulations would have not been still an issue.

My Gran was the same. As a school teacher in the 1960's and as a divorced woman and single parent (which was rare back then) she bought a 5 storey house/triple garage and huge garden on top of one of the seven hills of Bristol with a bank loan (not a mortgage) and paid the thing off in six years!!!

Those houses probably go for near a £1m now. Or did.

[NumbNut]

AA still a good rating. My guess is it's a lot better rating than what they will get for their Brexit Strategy Plan, which at this stage appears to be a pair of dice, a blindfold and a tub of personal lubricant.

It's just like the Automobile Association or . . . Alcoholics Anonymous, or American Airlines.

Australian Arzeholes?

You rang?

[neverdie]

AA still a good rating. My guess is it's a lot better rating than what they will get for their Brexit Strategy Plan, which at this stage appears to be a pair of dice, a blindfold and a tub of personal lubricant.

It's just like the Automobile Association or . . . Alcoholics Anonymous, or American Airlines.

Australian Arzeholes?

You rang?

I would NEVER address you good sir, in such a nasty evil fashion.

[Jip99]

... my elderly mother has GBP200k in fairly-liquid Building-Society accounts, which earn her less than a grand a year !

If she's elderly, forget the interest, divide by 20 and spend it.

Why spend 1k a year and have 200k in the bank when you die, spend 10k a year until you die or it's gone.

You or I would do this of course, but she is 86-years-old, and this is anyway merely her emergency-money to cover nursing-expenses or other minor things, which might crop up. It's a reassurance thing, not at all a rational investment-decision, to keep this part of her assets in cash or readily-available accounts.

But it does underline the lousy deal, which those who've scrimped & saved all their lives, are now getting for their savings. That's why I mentioned it. And i don't regard this as a sign of a good economic-situation, the government claims to want to see people saving for retirement, but then offers worryingly-low returns to reward them.

My ex mother-in-law is in the same situation.

One has to hope that they never need residential care as that 200k gets soaked up very quickly.

[ilostmypassword]

... my elderly mother has GBP200k in fairly-liquid Building-Society accounts, which earn her less than a grand a year !

If she's elderly, forget the interest, divide by 20 and spend it.

Why spend 1k a year and have 200k in the bank when you die, spend 10k a year until you die or it's gone.

You or I would do this of course, but she is 86-years-old, and this is anyway merely her emergency-money to cover nursing-expenses or other minor things, which might crop up. It's a reassurance thing, not at all a rational investment-decision, to keep this part of her assets in cash or readily-available accounts.

But it does underline the lousy deal, which those who've scrimped & saved all their lives, are now getting for their savings. That's why I mentioned it. And i don't regard this as a sign of a good economic-situation, the government claims to want to see people saving for retirement, but then offers worryingly-low returns to reward them.

So, in effect, what you want the UK government to do is raise interest rates so pensioners can get a higher return. But at the same time you complain about the debt, Don't you understand that the higher the interest rate the government pays, the greater the debt. And what percentage of bonds are actually owned by pensioners or in some way benefit them? And what percentage are owned by the wealthy and powerful? It would be far more economical and sensible simply to increase the benefits of pensioners. Unless, of course, you like the idea of subsidizing the rich.

[ilostmypassword]

There is also the related question of the FTSE. I've noticed a lot of people saying that the FTSE has risen since Brexit. What they don't note is that it's the FTSE 100 that has risen. The FTSE 100 is composed largely of mining stocks and other very large corporation most of whose business is not in the UK. So their exposure to the consequences of Brexit is small But if you look at the FTSE 250, which consists for the next 250 firms in terms of size, whose business is much more exposed to conditions in the UK, you'll find that it hasn't recovered from the Brexit vote.

I should add that I don't think that Brexit is going to be an economic disaster. That's an overstatement But most likely it will reduce permanently the growth rate of the UK economy.

I just found this link: http://www.telegraph.co.uk/business/2016/06/27/why-we-should-be-looking-at-the-ftse-250-and-not-the-ftse-100-to/

Edited July 2, 2016 by ilostmypassword

[Ricardo]

You or I would do this of course, but she is 86-years-old, and this is anyway merely her emergency-money to cover nursing-expenses or other minor things, which might crop up. It's a reassurance thing, not at all a rational investment-decision, to keep this part of her assets in cash or readily-available accounts.

But it does underline the lousy deal, which those who've scrimped & saved all their lives, are now getting for their savings. That's why I mentioned it. And i don't regard this as a sign of a good economic-situation, the government claims to want to see people saving for retirement, but then offers worryingly-low returns to reward them.

My ex mother-in-law is in the same situation.

One has to hope that they never need residential care as that 200k gets soaked up very quickly.

Yes, it will only cover the first few years of care, then we'll have to look at selling part of her investment-portfolio or her London home.

[Ricardo]

So, in effect, what you want the UK government to do is raise interest rates so pensioners can get a higher return. But at the same time you complain about the debt, Don't you understand that the higher the interest rate the government pays, the greater the debt. And what percentage of bonds are actually owned by pensioners or in some way benefit them? And what percentage are owned by the wealthy and powerful? It would be far more economical and sensible simply to increase the benefits of pensioners. Unless, of course, you like the idea of subsidizing the rich.

"the higher the interest rate the government pays, the greater the debt"

Which is why I don't understand why, when the government can finance its infrastructure-spending so very cheaply through bond-sales, it continues to prefer to use PFI instead ? Surely not just to keep the spending off its own books, when it costs so much more, long-term over the next 30-years ?

And if yields have now been driven so low, and therefore bond-prices so high, what will happen when interest-rates do eventually turn ? Surely the value of the bonds will fall, significantly ? What will that mean for the pension-funds or investors or banks who own the bonds, when they mark their reduced-value to market ?

I must be dense, because I see it as possibly leading to a crash, meanwhile I'll continue to steer clear of any bond-investments myself.

But perhaps it really is different, this time ...

[ilostmypassword]

So, in effect, what you want the UK government to do is raise interest rates so pensioners can get a higher return. But at the same time you complain about the debt, Don't you understand that the higher the interest rate the government pays, the greater the debt. And what percentage of bonds are actually owned by pensioners or in some way benefit them? And what percentage are owned by the wealthy and powerful? It would be far more economical and sensible simply to increase the benefits of pensioners. Unless, of course, you like the idea of subsidizing the rich.

"the higher the interest rate the government pays, the greater the debt"

Which is why I don't understand why, when the government can finance its infrastructure-spending so very cheaply through bond-sales, it continues to prefer to use PFI instead ? Surely not just to keep the spending off its own books, when it costs so much more, long-term over the next 30-years ?

And if yields have now been driven so low, and therefore bond-prices so high, what will happen when interest-rates do eventually turn ? Surely the value of the bonds will fall, significantly ? What will that mean for the pension-funds or investors or banks who own the bonds, when they mark their reduced-value to market ?

I must be dense, because I see it as possibly leading to a crash, meanwhile I'll continue to steer clear of any bond-investments myself.

But perhaps it really is different, this time ...

The government uses PFI because it makes it look like they are spending less when actually they are spending more.

If interest rates on bonds go higher most likely that will mean that the economy is stronger. So that would mean good news for the economy on the whole

[Linzz]

More opinion about rating agencies from Armstrong

https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/rating-agencies-cannot-be-trusted/

[ilostmypassword]

More opinion about rating agencies from Armstrong

https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/rating-agencies-cannot-be-trusted/

S&P also downgraded the USA's date in 2011. The markets responded by driving interest rates even lower. Nobody who understands the bond markets cares what S&P, or any of the other credit rating agencies, say about sovereign debt.

[nontabury]

More opinion about rating agencies from Armstrong

https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/rating-agencies-cannot-be-trusted/

S&P also downgraded the USA's date in 2011. The markets responded by driving interest rates even lower. Nobody who understands the bond markets cares what S&P, or any of the other credit rating agencies, say about sovereign debt.

Maybe someone can confirm,if any of the credit rating agencies have also downgraded the EU.

[bkkcanuck8]

More opinion about rating agencies from Armstrong

https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/rating-agencies-cannot-be-trusted/

S&P also downgraded the USA's date in 2011. The markets responded by driving interest rates even lower. Nobody who understands the bond markets cares what S&P, or any of the other credit rating agencies, say about sovereign debt.

Maybe someone can confirm,if any of the credit rating agencies have also downgraded the EU.

How much debt does the EU have? What is the percentage of GDP? I did not think the EU as an entity had the ability to issue debt....

I don't know if they can lower Greece debt any further

[bkkcanuck8]

More opinion about rating agencies from Armstrong

https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/rating-agencies-cannot-be-trusted/

S&P also downgraded the USA's date in 2011. The markets responded by driving interest rates even lower. Nobody who understands the bond markets cares what S&P, or any of the other credit rating agencies, say about sovereign debt.

Or it might be that safe is relative

Where are you going to put the money to be safe -- the Bank?? Stuff it in socks and have it eaten by rats?

Unfortunately the safe countries, the ones that have due process and have legal protections that are upheld are bankrupting themselves, the banks blew themselves up -- leaving countries where your account can be frozen without due process or the ability to go to court....

I am afraid it is that much of a basket case....

[SgtRock]

More opinion about rating agencies from Armstrong

https://www.armstrongeconomics.com/international-news/north_america/americas-current-economy/rating-agencies-cannot-be-trusted/

S&P also downgraded the USA's date in 2011. The markets responded by driving interest rates even lower. Nobody who understands the bond markets cares what S&P, or any of the other credit rating agencies, say about sovereign debt.

Maybe someone can confirm,if any of the credit rating agencies have also downgraded the EU.

Moody's have the EU at AAA stable as of the 24 June

https://www.moodys.com/credit-ratings/European-Union-credit-rating-600049532