The etymology of the word “credit” means “belief” or “trust”.
To be creditworthy means that the lender believes they will be repaid on the due date etc.
In the end, it is all about the perceived risk of default.
That is true of individuals, companies, and, crucially, countries.
There is a reason that Sevco cannot get regular lending facilities and instead have to borrow from the distressed sector.
Bottom line, the less trust, the higher the cost of borrowing.
The news tonight is that the credit rating agency Moodys downgraded the UK’s outlook from “stable” to “negative”.
I quickly called Rugger Guy and asked him to explain it to me in Golden Retriever.
He said that it means that British Government’s borrowing will cost more tomorrow than it did today.
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Phil, why did no one see this coming?
If you want to know what comes next, it’s one of 2 scenarios
1. Massive, and I mean massive, asset bubble crash, house prices countrywide down 40% on average, with the S.E. Of England down 60%
2. More QE, higher inflation, collapse of the £, economic collapse, possible hyper inflation event… Followed by a massive asset bubble crash
Now, if you’d asked me 2 weeks ago what path the British establishment would take, I’d say 2…they hold all the assets and the helicopter gun ships.
2 weeks later the British government now realise that the bankers are in charge and they will be made toe the line, so 1 is more likely now
I guess if Britain fails the who shebang falls down so they cant be allowed to go rogue
Either way, Britain faces hardship, the sort of hardship that means fitba season tickets take second place to yer kids eating
Real austerity.
Two comments on this article:
The downgrading of UK credit rating will, along with Liz Truss’s shenanigans of last few weeks will hurt a lot of innocent people financially. With some sections of society the additional financial strain will adversely effect their mental and physical health.
Truss & Karteng’s mini budget experiment in bizarre ‘right wing Keynesian economics’ was so badly thought out with regard to background financial situation and how it was implemented that it spooked financial markets. This has now given these money men a lot more power over economic policy and will make other changes in economic policy,even if better thought through, by whatever party more difficult to implement.
The Tory party and members have a lot to answer for choosing Truss who was obviously never nearly up to job and who has in hardly a month as PM created so many problems for so many people with long term implications. They should be hanging their head in shame rather than moving on to choose the next cab of the rank.
In what sense was the mini-budget nonsense “Keynesian”?
Markets were already attaching what many investors refer to as a “moron premium” to UK debt, following the not-so-Mini Budget Trussterf**k. In other words, while interest rate rises were pushing up borrowing costs in many countries and for many government’s, as claimed, the UK cost of servicing its debts was going up at a faster rate than could be explained by factors like that. The difference is what is being charged for their disastrous incompetence. Having traded below their US equivalents, UK bond yields overtook their US counterparts, even though policy rates in the US have risen faster than here. The spread over German yields has also increased and, while we are not up there with Italy yet, they have moved closer towards those of other “Euro periphery” countries on that measure.
Many people are understandably uptight about the mismanagement of Truss. She’s not the least popular PM of all time, though. Blair isn’t just the worst political leader in political history-he’s arguably one of the worst human beings.
Wonder if the klan will be singing ‘Rule Brit-an-yurr’ with the same gusto today.