UK loses top AAA credit rating

British Economy: What solution? Import another 100-Lakshmi Mittals+Ratan Tatas..

British companies are making third-grade acquisitions abroad – which is not helping British industry to stay the course | Cartoon on Jan 15 2013 by Randy Bish via Cagle.com

he combined debt of the UK economy – State, Corporate and household debt is at a staggering 500% of the GDP. This is the debt that the UK economy has to support. Assuming weighted average interest rates on this debt is at a low 5%, it means that the UK economy is spending 25% of its production on interest payments.

Since the savings rate of the UK is low-to-negative, it means that the UK economy will borrow more – just to make interest payments.

What could be a solution?

Massive inflation to get this debt down quickly.

Or slowly ratchet down the debt, and write-offs, low-inflation,  and desperate prayers that the economy:

1. Hits another North Sea oil
2. Builds another 1000 ARM-chips kinds of company
3. Imports another 100-Lakshmi Mittals+Ratan Tatas.

How likely is any of this?

The UK has lost its top AAA credit rating for the first time since 1978 on expectations that growth will “remain sluggish over the next few years”.

The ratings agency Moody’s became the first to cut the UK from its highest rating, to Aa1.

Moody’s said that the government’s debt reduction programme faced significant “challenges” ahead.

The UK has had a top AAA credit rating since 1978 from both Moody’s and S&P.It added that the UK’s huge debts were unlikely to reverse until 2016.The UK’s net sovereign debt was the equivalent of 68% of the country’s annual economic output, or GDP, at the end of last year.All three major credit agencies last year put the UK on “negative outlook”, meaning they could downgrade its rating if performance deteriorates.Germany and Canada are the only major economies to currently have a top AAA rating – as much of the world has been shaken by the financial crisis of 2008 and its subsequent debt crises.

via BBC News – UK loses top AAA credit rating for first time since 1978.