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  • Britain’s Failing Credit

    Last week, Moody’s Investors Service warned that the increase in U.S. debt caused by the ‘Economic Stimulus’ Act could hurt the country’s AAA credit rating. According to Moody’s the public debt as a percentage of the total economy (GDP) will jump 21.6 percent, up to 62.4 percent of GDP by 2010. That’s bad. But Britain’s even worse off. Its peril is a warning that the U.S. should heed.

    Yesterday, ratings agency Standard & Poor’s warned that it might have to review the top-notch score it gave to Britain’s credit only last month. The reason: S&P had assumed that only about 20 percent of Britain’s GDP was at risk from bad bank assets. But the latest reports suggest that the government’s guarantee of toxic assets may cost as much as 30 percent of GDP.

    Economists now forecast that Britain’s total debt as a percentage of GDP will reach 70 percent by 2011. And that’s the official figure: the real level of Britain’s debt is much higher. A credit downgrade for Britain – as for the U.S. – would only increase the price of the immense sums both nations plan to borrow in the coming years. Call it their latest contribution to the Global Government Debt Bubble.

    What do the markets have to say about this? The Credit default swap (CDS) spread – a measure of the likelihood of default – on British debt has now reached 165. That’s up 38 basis points in a week. When the CDS spread approached 100, respected British commentator Ambrose Evans-Pritchard described it as “frightening.” The markets are telling us that Britain is more than twice as likely to default as Germany (at 73) or France (at 79), and only slightly better off than Italy (at 192).

    Yes, the sum total of the Labour government’s achievements is to have spent so much money, and to be on the hook for so much more, that Britain is now being mentioned in the same breath as Italy, Spain, and Greece. The latter two have already been downgraded. And yet the parade of borrow and spend economics continues unabated around the world, topped off by the U.S.’s own Stimulus Act.

    It’s a perfect illustration of Einstein’s definition of insanity: “Doing the same thing over and over again and expecting different results.

    Posted in Ongoing Priorities [slideshow_deploy]

    9 Responses to Britain’s Failing Credit

    1. jennifer, Las Vegas, says:

      Have we as american's lost all common sense? It seem as though we are the dog's and the left are the masters, saying "here doggy, doggy. They throw us a bone and we wag our tail as to say thank you. I am a disabled conservative black women. My life hasn't changed one bit since the president has signed the "commandments". All I see and hear is that the president is suppose to deliver us from what I don't know. It is left up to everyone of us who live and work in the united states to deliver our country out of our recession through good old fashion capitalism.

    2. Tim says:

      Seems to me Britain will fall first. Don't worry the Muslims are in place their to pick up the pieces and invoke Sharia Law. A simple task since the Britains have allowed themselves to be disarmed. They are ripe for the picking. Self defense is a gift from God not some fool's whom believe themselves smarter than the rest. It is a healthy government that fears their masses.

    3. Sliver, Wisconsin says:

      Jennifer you are right on, so many people have lost their common sense, it's similar to a rock star or a hollywood idiot craze that people swoon over without thinking. They think socialism/Communism is just great without doing any research

    4. Alan Rae - England says:


      Aren't we forgetting that it was red blooded capitalist bankers who created all these toxic assets in the first place.

      Or am I missing something here.

      The real problem we have in the UK is the destruction of the manufacturing base. A certain M Thatcher had a fairly prominent role in this – if memory serves.

      This means we have nothing but the city of London and Heathrow holding our trousers up.


      enjoyed your Ts and Cs on commenting btw

    5. Tim Az says:

      Alan unfortunately is a hopeless victim of liberalism. It was liberals starting with Jimmy Carter whom incrementally forced bankers to give home loans to people who could never pay them back. Then they told Freddi and Fannie May to buy up those toxic assets and they would bail them out. The problem Alan has in the UK is the achievers their refused to carry the weight of those who refuse to work. They will not pay the confiscatory taxes required to support the non achievers. That's why actors and musicians as well as business owners flea to other countries.

    6. Spiritof76, New Hamp says:

      Alan Rae thinks that the red-blooded capitalists brought this on. I beg to differ, at least in the US. The Community Reinvestment Act that was enacted in 1979 to encourage the lenders to take on risky mortgages. Initially, it was 1% of the total mortgages and had remained at the level until early 1990. The Clinton administration increased the percentage and went after the banks with the Attorney General leading the way. They forced the banks under threat of the government action. That is not free market capital but a heavy handed intervention. At the end of 2001, the banks were writing over 22% of the loans to people and businesses that could not pay back, all in the name of promoting home ownership. The US Congress forced Fannie Mae and Freddie Mac to repackage the under performing loans as mortgage backed securities with the tacit backing of the US government. They loaned as much as 125% of the home values, interest only loans and ARM and ballooning loans. No private capitalist would have risked his investment in foolish terms like that. The only reason it prospered was because of the government. As late as 2006, when several attempts were made to rein in Freedie and Fannie, Barney Frank and Chris Dodd stood in the way. So, it is government intervention that created the sub-prime bubble. Now we are on our way to Government bond bubble. It will result in collapse.

      Please show me one instance of Socialism succeeding in anything other than spreading economic malaise and stagnation?

      What we need is capitalism without government intervention. If a bank took the risk it must be allowed to fail. Failure is not terminal. It will regenerate as long as the government stays away.

      The US Constitution is the road map to prosperity and not the philosophy of the current Socialist horde occupying the US government.

    7. Marc says:

      Moody's says this. Standard & Poor’s says that.

      Why do you care?

      These are the same guys who were bribed to rate garbage as AAA, which caused all the financial trouble we are in. Clearly they lost their credibility a long time ago. Ignore them. It'll save you time and money.

    8. Bob Lawlaw, London says:

      What do you guys have against Sweden – a well run socialist country?

    9. Eduardo, Brazil says:

      Isn´t it a bit ironical? I mean, wasn´t Gordon Brown who claimed that he saved the finacial system and the world?

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