AAA ratings are a beauty contest – someone has to win

Duncan worries that the UK might lose its treble AAA sovereign debt rating. I think this is mistaken, even with David and George in charge I don’t think they can screw the economy fast enough to make us lose our rating.

For the purposes of this post I going to assume that Duncan didn’t really mean “AAA rating” because it is a informationless designation created by corrupt and incompetent rating agencies. However, it is useful short hand for “our borrowing costs increasing and investors thinking UK debt is unsafe” so I understand using it as a proxy.

The Eurozone is a mess, the US is still not adding jobs quickly enough to lift its employment to population ratio and Japan is Japan. The US, Japan, Italy, Germany and France all have debts of over a trillion dollars outstanding. The UK’s total debt is just under a trillion dollars [src, some figures a little out of date, all close enough].

Apart from perhaps Canada, no country comes close in terms of providing a deep, liquid and widely traded market for their bonds. If someone wants to own something which can be easily and quickly sold and about which there is a lot of information available they are going to hold one of these bonds. Similarly, many banks and organisations will be forced to hold some nominally safe bonds too.

The UK doesn’t have be run well or grow strongly (which it looks like it won’t), because so long as Europe remains a mess people will be happy to hold our debt because it is one of the least ugly around. Take that thought as consoling or terrifying as is your preference.

Advertisements