S&P Downgrades.....the United Kingdom - Yes, the entire country

In Britian downgraded:

Britain may lose its top-level credit rating at Standard & Poor’s for the first time as the government’s finances deteriorate amid the worst recession since World War II.

The outlook was lowered to “negative” from “stable” because of the nation’s increasing “debt burden,” S&P said in a statement today. The pound fell the most in almost a month against the dollar. Stocks and bonds slid, and the cost of insuring debt against default rose.

Britain would become the fifth western European Union nation to lose its rating because of the economic slump, following Ireland, Greece, Portugal and Spain. The U.K. plans to sell a record 220 billion pounds ($343 billion) of bonds in the fiscal year through March 2010 as the recession cuts revenue and forces the government to raise spending.

Negative. The United Kingdom is negative. What's strange about this is Japan has had the largest economic contraction on record. What is S&P doing with them? Wiping them off the map and putting a for sale sign on the Islands?

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How close is the U.S. to a downgrade?

Hello Bob and everyone,

I'm a longtime lurker - first time poster. How scary is this article?

On Thursday, investors decided it was time to get out, pushing the S&P 500 index, which rallied more than 35 percent over the last two months, 1.7 percent lower on the day. At the same time, the 30-year Treasury bond fell three full points in price and its yield jumped 0.17 percentage point to 4.33 percent, the biggest one-day increase in two weeks.

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Britain's fiscal profligacy has already led to a failed auction of gilts, defined as one in which there are not enough bidders for the amount of bonds on auction.

The United States has not yet experienced such a misfortune, particularly with the Fed propping up the market. But the prospect now appears less far-fetched than before.

"Don't think for a second that the same cannot happen to the USA at some point, judging by the massive run-up in government debt and debt guarantees," said David Rosenberg, chief economist at Gluskin Sheff in Toronto, Ontario.

 

 

 

 

What are the chances the U.S. will see an auction failure in 2009? What are the implications if we do?

 

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Welcome to EP Yellow Dog!

I love it when lurkers pipe up. Glad to see ya.

I saw that too and something about Geithner doing "debt reduction" along with the Fed to try to stop a downgrade. But I saw Bill Gross of PIMCO (who runs the world) say a credit rating downgrade for the U.S. is inevitable.

Bloomberg sums it up.

In terms of implications all I know is it would be the same as if you had your FICO score tank. You would not be able to get more loans, or as easily, your interest rates would go up, you might need more secured collateral.

In terms of Treas. auction failure, hopefully midtowng will see your comment. I think that would either trigger selling debt at a major interest rate, possibly a default.
i.e. dollar with devalue, inflation (to hyperinflation) and the economy would grind to a halt.

but in detail what would happen, it would make a very good post.

I found a doomsday piece - with white paper on this.

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Don't know if that can happen

as the FED stands ready to be the buyer of last resort.

A debt downgrade means higher borrowing costs. But for a reserve currency?

The scenario I see coming to the forefront is a currency devaluation. They are following the playbook to a "T".

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Given the possibility of HR1207 passing

I think that the FED as "Buyer of last resort" will be forced to report that they *were* the buyer of last resort- and that would be taken as the same as a failed auction by the rest of the market.

And it's my belief that within the next 3 months, petrodollars will no longer be a reserve currency for anybody.
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Executive compensation is inversely proportional to morality and ethics.

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Maximum jobs, not maximum profits.

Remains to be seen

But I won't hold my breath.

Lets look at their record so far.
Stopped publishing M3
Asked about where the money was going and refused to disclose.
Have never required the banks to open their books as part of disclosure to receive TARP funds.

We all know who really runs the show. Politicians are just front men for the mob.

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Thank you for the warm welcome

Thank you for your response.

I have the utmost respect for all the contributors here. You have given me a crash course in macro-economics (and I love the Friday night videos!)

My background is more consumer marketing - so I'll submit to your economic expertise

Thanks for the links! 

From the Bloomberg article:

Gross said in an interview today on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,” financial markets are “beginning to anticipate the possibility.”

I'm not feeling warm and fuzzy.

 

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