Scandinavia or bust. Quite possibly literally.

February 23, 2013 3:10 PM

Bloomberg: "Britain [UK] lost its top credit rating by Moody’s Investors Service, which cited weakness in the nation’s growth outlook and challenges to the government’s fiscal consolidation program. The rating on the U.K. was lowered one level to AA1 from AAA and the outlook on the nation’s debt changed to stable from negative, Moody’s said in a statement yesterday."

More in the Daily Telegraph, BBC, New Statesman, Guardian, Economist, and the Independent.

The list of countries by credit rating. The remaining countries holding the top rating (AAA) and an outlook of stable, with the three major credit rating agencies; Standard & Poor's, Fitch and Moody's:

- Australia
- Canada
- Denmark
- Finland
- Norway
- Singapore
- Sweden
- Switzerland

(The Dagong Global Credit Rating puts China joint-top and gives the USA the same rating as Spain.)

Recently in MetaFilter: The Nordic countries are reinventing their model of capitalism.

posted by Wordshore (50 comments total)

Austerity rules!
posted by Drinky Die at 3:13 PM on February 23 [2 favorites]

In somewhat more disturbing news: the media still pays attention to credit rating agencies.
posted by selfnoise at 3:25 PM on February 23 [22 favorites]

Nice one, Tory motherfuckers.

(Lib-Dems, stop pretending you exist.)
posted by Artw at 3:25 PM on February 23 [5 favorites]

The modern financial industry has turned me into the commie pinko my father always assumed I was. (The Tea Party hasn't helped)

If Shakespeare was alive today, Lawyers wouldn't go first.
posted by DigDoug at 3:25 PM on February 23 [7 favorites]

Triple Dip not Triple A!

Truth be told though, this hasn't much surprised me or made me worry. It's a thing that was coming anyway, I reckon.
posted by Jehan at 3:28 PM on February 23

The ratings agencies all failed in assessing, and in the case of (at least) Moody's and S&P were culpable in the sub-prime collapse that caused the global crisis. I can't imagine any of them have any credibility at this point beyond name recognition.
posted by clarknova at 3:30 PM on February 23 [5 favorites]

I love this quote regarding ratings agencies and the states scared of them:

The spectacle of states pathetically frustrated because a small, anonymous troop of self-proclaimed evaluators has given them a bad mark, as would an economics prof to dunces, is at once farcical and highly disturbing. So, dear voters, you have put in power people who tremble at night like schoolchildren when they learn in the early hours that representatives of the ‘market’ - i.e. the speculators and parasites of the world of property and capital-have rated them AAB rather than AAA?

posted by MartinWisse at 3:37 PM on February 23 [6 favorites]

A dip down the credit rating didn't hurt the US or France much in terms of the borrowing rate; the size of the UK economy and outlook shouldn't make government borrowing significantly more expensive than it was yesterday, as long as it doesn't keep heading south.

On the plus side, George Osborne pegged his flag to the triple A, so we're now that much closer to seeing him booted in a re-shuffle. I can dream, right?

(For Merkins, Osborne is basically Paul Ryan without the baseball cap).
posted by ArkhanJG at 3:46 PM on February 23 [1 favorite]

For Merkins, Osborne is basically Paul Ryan without the baseball cap

That is very unfair. Ryan has never actually been able to implement the crazier politics. Osborne is who Ryan wishes he could be.
posted by jaduncan at 3:53 PM on February 23 [1 favorite]

On the plus side, George Osborne pegged his flag to the triple A, so we're now that much closer to seeing him booted in a re-shuffle. I can dream, right?

Hope so, but fear this will not happen.

For those unfamiliar with the aristocracy ruling the UK; George Osborne is number 1 in the lower picture. In the top picture, the current UK prime minister is #2 and the mayor of London (and possible next Tory leader and UK prime minister) is #8.

Ah, it's so exciting, living in 1813 again.
posted by Wordshore at 3:56 PM on February 23 [2 favorites]

On the plus side, George Osborne pegged his flag to the triple A, so we're now that much closer to seeing him booted in a re-shuffle. I can dream, right?

I never thought I would say this, but I'm beginning to feel sorry for Cameron. Who would want to be shackled to the corpse of Osborne?
posted by Jehan at 4:09 PM on February 23

Who would want to be shackled to the corpse of Osborne?

I think some of the disabled people who committed suicide post ATOS-reviews would have gone for that as a final moment.
posted by jaduncan at 4:15 PM on February 23

Austerity rules!

No, paying what you owe rules.

Britain, by definition, has been living far beyond its means for a long time. Austerity, bringing itself back into line with what it can actually spend, is a difficult and arduous process, because the economy shrinks as the government slows and/or stops borrowing.

This is a feature, not a bug. If the economy is being driven by government debt issuance, this is false prosperity. It is prosperity based on borrowing, and borrowing has to be paid for.

Wealth does not come out of nowhere, it has to be worked for; dug out of the ground, grown in fields, generated from wind or sun or geothermal sources, processed with labor and expertise. If your economy is based on borrowing things from other people, that means you need to pay that wealth back. You get growth today in exchange for lower growth tomorrow.

If you're smart about what you're using the borrowing for, like building factories and power plants and other projects that will liquidate the debts that were used to build them, then borrowing can be incredibly powerful. It's how surpluses in wealth generation can find the best opportunities for systemic growth. But if you are stupid about what you are borrowing for, then you end up temporarily goosing today's economy, at the price of lower growth in the future, as you must repay your creditors. And this is what Britain has been doing for a long time; living on its credit cards, buying more than it can actually afford.

You can argue about taxes being too low, whatever you want, but it ultimately does not matter. What does matter is that a lot of wealth came into Britain, with the expectation that even more wealth would then be extracted from Britain in the future. The British society, as a whole, wasted a very great deal of that money, so now you're stuck with a whopping huge bill, and you didn't build the assets to pay that bill.

You have three basic options:

1. You can make good on your promises as a country, and send a lot of wealth to the people who lent wealth to you in good faith, reducing your standards of living even more than they were goosed by the borrowing.
2. You can default, which will be very painful.
3. You can pretend you don't have a problem, and keep digging the debt hole, because it hurts so much to fill it in.

Option #3 is the economy-wrecker. If you keep doing that, you only make the problem worse, not better. You kick the can down the road, and eventually, you will either pay those bills, or you will suffer horrific consequences as a result of defaulting.

"We can just print money!" is the inevitable chorused refrain. That's another form of default. You're pretending to pay back the energy and goods and labor that you borrowed from the world. Living in that kind of fantasy, that you are repaying wealth, when you are actually printing money, will cause extraordinary destruction.

You've run up the bill. You have to pay it. If you don't pay it, there will be consequences.... very severe consequences. The more you run that bill up, the more dependent you make your economy on debt issuance, the more severe those consequences will be.

Austerity sucks. You may decide that it sucks so much that you would rather default, which will probably suck even worse, but only for awhile. Honestly, a full default may be your best overall option; while you take a lot of pain all at once, the pain then ends, and you can resume growth. Austerity is going to suck for at least twenty years.

But what sucks most of all, the absolute worst outcome, is the collapse of your currency, and that's what "monetizing your debts" (aka money printing) will eventually do to you. This is the worst of all possible outcomes -- living beyond your means, while pretending that you are not, by manipulating your currency. The amount of damage you can do to yourselves with this kind of wishful thinking is unlimited. Austerity, or a default, can only hurt you so much, but manipulating the currency to try to support an unsupportable standard of living can ruin you as a country.
posted by Malor at 4:35 PM on February 23 [4 favorites]

1813

Exactly. Life in the UK is like life aboard a Royal Navy warship from the Napoleonic War. Captained by those capable only of deep cruelty and unswerving indifference. We will weather the storm and stay the course if we are to be victorious! they shout, while all those below decks talk urgently and quietly about mutiny.
posted by urbanwhaleshark at 4:35 PM on February 23 [5 favorites]

This is relatively meaningless, and it was obvious by the GDP figures released a few weeks ago. Basically, the debt hasn't changed much. What has changed is the expectation of growth. If the economy is not growing, austerity + de-levering is exactly what one should do... which is exactly what the UK is doing.

Labour is funny – attacking the Conservatives for austerity missing the growth targets that then resulted in the downgrade. As the credit rating is in part based on debt to GDP, the first problem is... the debt. Debt which labour certainly enjoyed issuing.

As I understand it, the reason the government has chosen austerity is because growth is slow. If growth could be stimulated with additional borrowing, one would imagine that would be the path the government would have chosen. Being that there no magical solution to growth, austerity is the logical choice. It's not pleasant, but logical.

Basically, all the downgrade means is that the UK shouldn't increase it's borrowing rate at the moment – which as far as I know, it's not. The media frenzies around a bleeding story – this could drastically increase the cost of UK borrowing! – which is important if the UK was planning on significantly increasing it's borrowing costs.

One has to wonder how much of this frenzy is being driven by the precarious positions of the US and Japan – two former economic superpowers who are so riddled with debt, inflation is literally strangling the counties to death. One just has to look at the suicide rates in Japan, or the rising inflation in the United States to see what happens when one does not choose austerity. If GDP is not growing AND one continues to borrow, the result is the Magical Fairy Of Inflation...

Unless one speaks Spanish, Italian, or Greek, and handed over one's ability to inflate to a bank dominated by Germans. Germans who detest inflationary spending. In the case of Southern Europe, their borrowing costs exploded because they couldn't inflate the currencies any longer. Whilst the austerity is painful today – and it is – it also is setting them up for a better tomorrow. There is little chance of their GDP growing, for their are no obvious drivers of GDP growth. Old Europe is, well, old. Lots needs to happen for GDP to start growing again. Thus, they shouldn't borrow more than they already do.

Similarly, the UK shouldn't borrow more for now. The UK has some very obvious engines of growth – a burgeoning culture of innovation, and strong relationships with countries like India – that could easily kick off increased growth. The UK needs to stimulate intellectual property exports rather than financial services exports, but once that happens, one can imagine significant growth to immediately follow. But until that happens, the UK shouldn't borrow more.

That is the point of austerity. The downgrade is not a result of austerity but perhaps rather a confirmation of the need for it.

As far as the ratings agencies go, they may have credibility problems – especially after the crisis. But it's important to remember that they are essentially the referees in the game of finance. They don't make the rules, they comment on adherence them. In the case of the financial crisis, finance agreed how to play the game, and the credit agencies commented on that game. If one were to have a problem with the conduct of the ratings agencies, one really has a conflict with the rules of finance.

If one has a problem with the rules of finance, then one really has a problem with the ability of the government to act in the best interest of the people versus private enterprise. Finance is hidebound by the rules provided to it by the governments that allow finance to operate. If finance is acting inappropriately, it is because the government is allowing finance to act inappropriately. So perhaps it's best to say, that if one has a problem with the credit rating agencies, one has a problem with the government enforcing the rules of finance.

And finally, if one wants to know the locus of the man with the power, simply watch where the people protest. If the people are protesting at the heart of government, the power lies with the government. If the people are protesting at the heart of finance, the power lies with finance (and probably the government has abdicated its power to finance). So far, I haven't seen anyone protesting the credit ratings agencies, so I doubt they have very much power.
posted by nickrussell at 4:36 PM on February 23 [2 favorites]

Austerity cannot fail, it can only be failed.

Either way you look at, austerity has failed to do what it's proponents said it would. It neither brought new economic growth nor shrunk current and future budget deficits. Less future growth means less money to pay back debts means larger deficits in the future. Just as predicted by those calling for increased stimulus instead.

Now I see the usual suspects moving the goalposts. Austerity isn't supposed to grow the economy, recessions are a good thing! Budgets don't matter anymore, only the amount of pain we can cause. Destroy the villaige in order to save it!

Time to give up your religion guys.
posted by eagles12 at 4:54 PM on February 23 [13 favorites]

Austerity sucks. You may decide that it sucks so much that you would rather default, which will probably suck even worse, but only for awhile.

False dichotomy here.

The error in your wider post is this thinking:

1) We have a problem!
2) We must do something!
3) This is something!
4) Therefore we must do this!

It is important to pick the right something in step 3. Cutting the top rate of tax and cutting public services and funding across many areas may not have been the right something (Keynes is revolving nicely).

The UK is not anywhere near a default, and therefore probably shouldn't have aimed to make lots of people unemployed if it wanted to avoid worsening the debt level by going back for another recessionary dip. Growth also decreases debt as a percentage of GDP, and when even not-famously-left-wing organisations such as the CBI (roughly equivalent to the US Chamber of Commerce) are suggesting a growth strategy you have to think that most governments would try it.

Herbert Hoover is not as well regarded as FDR, you know.
posted by jaduncan at 5:00 PM on February 23 [7 favorites]

A specific example: cutting funding for universities and science is unbelievably short-sighted.
posted by jaduncan at 5:01 PM on February 23 [4 favorites]

Also, credit ratings agencies have no credibility. They missrated the subprime mortages and contributed to the financial crisis. They are worse than useless. No one protests them because they are not well known by the public. Did you miss occupy wall street? People certainly protest the financial sector. Also, the U.S. and Japan are being strangled by inflation? Where do you get you information? The opposite is the case; in Japan deflation has been a problem for years.
posted by eagles12 at 5:03 PM on February 23 [2 favorites]

Austerity rules!

No, paying what you owe rules.

Indeed. But austerity as a way of paying debts has clearly failed. Severe cuts in public spending have weakened the economy, and made the debt even greater as a percent of the GDP. The only way the UK can pay back in debts without a long spell of suffering is to invest in productive infrastructure and assets to grow GDP. Borrowing should still happen, but only where it is spent on a clear investment. Given that there is much needless overspending in the UK economy--such as housing, transport and energy consumption--it should be fairly easy to drive them down significantly with smart investment. Money currently spent on imported fuel or paid out to foreign owners of assets will stay within the country, and it will also lower the cost of productive activity.
posted by Jehan at 5:14 PM on February 23 [7 favorites]

Who would want to be shackled to the corpse of Osborne?

*tabloid headline pending*
posted by Sys Rq at 5:19 PM on February 23

That is very unfair. Ryan has never actually been able to implement the crazier politics. Osborne is who Ryan wishes he could be.

Yes, indeed. And yet the "a right wing politician in X European country would be a left-wing Democrat in the US!" meme will never die.
posted by yoink at 5:31 PM on February 23

Grade inflation: even Greece gets a B-.
posted by pracowity at 5:47 PM on February 23 [1 favorite]

Yay Austerians!
posted by notyou at 5:57 PM on February 23

Malor / Nickrussel:

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.

John Maynard Keynes, A Tract on Monetary Reform (1923) Ch. 3
English economist (1883 - 1946)

Apply that to: in the long run austerity will prove to be good, for there must be growth after prolonged stagnation. No, there is no guarantee of that. Now explain that we need 10-20 years of austerity to people who live paycheck to paycheck, they might buy a well crafted bullshit, for a while. Then eventually some will wake up (as soon as they actually are between a rock and an hard place) and start voting toward a more radical and not necessarily rational approach to whater is told to them is the problems (plutocrats, cats, jews ? name a culprit).

All of that because austerity?
posted by elpapacito at 6:03 PM on February 23 [4 favorites]

Austerity is a crock. If the goal were cutting debts, corporate and top tax rates wouldn't get cut at the same time that poor people are having their food, education, and health care taken away. Somehow, that never happens!

People are forgetting the fact that the early 20th Century, the bloodiest period in the history of the world, grew out of austerity and oppression. We already see echoes of it in Golden Dawn.
posted by sonic meat machine at 6:21 PM on February 23 [6 favorites]

El Papa –

This pretty much sums it up:

Borrowing should still happen, but only where it is spent on a clear investment. Given that there is much needless overspending in the UK economy--such as housing, transport and energy consumption--it should be fairly easy to drive them down significantly with smart investment.

Austerity is a relative term, after all. Not all of public spending is an "investment". Just tonight we had a conversation at the pub (where we are all economists after all!) that £1 applied to the problem of youth homelessness saves lots of £ later treating the effects of youth homelessness.

In the last three weeks, three different people have said literally the same thing: "the challenge of society now is to grow without additional levels of physical consumption." One was an Oxford academic, the second was a sustainability professional, and the third was a private equity manager. Three people who rarely would agree on anything beyond the sky is blue.

How does one create economic growth without additional levels of physical consumption? There's not yet a formula to apply that to a large post-expansion Western economy. The reality is at the core of this may well be demographics – the the UK has reached the end of its demographic dividend, and now must manage consumption.

Language here is key. Manage consumption does not mean reduce consumption – it means consume differently. Grow without physical consumption means grow, but grow differently.

I – for one – am not in favour of long periods of austerity. However, simultaneously, it cannot be argued against that present economic systems are at their limits. Europe saw wealth creation slow some time ago. When that happens, it seems that there is often wealth transfer within a country. The hallmark of modern democracy is that growth is shared by many. However we have not seen democracies fare well when growth slows. What we have seen are policies which re-distribute wealth within societies.

That goes back to the Scandinavian reinvention of capitalism. As an economic cycle comes to its end, one can either innovate the economic model (as Scandinavia is doing) or continue with business as usual – as Japan seems to have done. Only so much wealth can be redistributed before either it works (Scandinavia) or it fails (Japan).

The next step is to figure out what to do next. For the UK, that means switching from a volume-based economy (physical goods) to a value-based economy (intellectual goods). I have no doubt the UK will make the switch (after all, I am an American living here making a long-term bet).

To make it simple, austerity is a bit like cutting up the credit card for a while to see what the real situation is. As long as one can keep borrowing, they're not forced to take a good, hard look at what is working and what is not. Hence the United States. The United States has made very little progress in cutting budgets. The argument in America seems to continually be about increasing the debt ceiling, rather than where the cuts are going to go.

It simply doesn't make sense to borrow capital if one doesn't know where to spend it. So austerity makes sense for a while, as it's very easy to keep borrowing without ever stimulating growth (as Greece found out).

I am not an economist by any stretch, these are simply the things that I see. If I were to vote, I would probably vote Labour. That being said, Cameron's government is doing the thing that is hardest for an elected politician to do. He is uncovering the problems in the underlying economy. It is very easy not to uncover the problems in the underlying economy. But then again, we cannot solve our problems by employing the same thinking that created them.

One difference is that in Europe, the cuts are happening across the board. Regularly, City AM screams about the threat of Basel, Cameron, Brussels or someone cutting banker bonuses or increasing taxes. Granted, Hollande in France appears to have gone too far. But in general, the austerity is being applied relatively evenly in the UK. It's toughening of rules across the board. Simultaneously, there are tremendous programmes for innovation here – and HEAVY investment in innovation and new growth drivers.

One concern I have always had with the US – and probably one reason leading to my own emigration – was the rising income inequity of the country. It currently sits in league with China, Venezuela, and Argentina. That level of income inequality produces significant levels of social instability. The UK sits around India, Switzerland, and Indonesia – markedly reduced level of instability, comparatively. More stable societies tend to make better long-term decisions. In fact, one could say that social stability may well come from making good long-term decisions.

And on a long time horizon, intermingling periods of austerity and growth may well be a good strategy. No economy can continue to grow forever, without occasional contractions and changes in direction. With the third dip of the recession, one thing blindingly clear is that the previous drivers of growth are not re-igniting. Thus, cut back on borrowing until you know what to spend the money on.

(Unless you're in the US, in which case the answer is probably defence. War on Terrorism. War on Drugs. War on xxx. (when will there be a War on War? If a War on War is won, does War stop?))

Just because a country has a AAA, does not mean it should borrow to its capacity. That is an errant assumption of single-minded growth. The reality is we now need a different type of growth.

As mentioned before, all the downgrade signals is that GDP was lower than target. Not a problem if borrowing is maintained or reduced. Actually, borrowing can be increased if it is spent of productive things.
posted by nickrussell at 6:50 PM on February 23

borrowing has to be paid for.

No it doesn't. I can has inflation? Fuck your bondholders.
posted by Damienmce at 8:20 PM on February 23 [3 favorites]

Are bondholders evil now?
posted by Justinian at 8:36 PM on February 23

Inflation is literally strangling the US and Japanese economies to death?

Are we sure it isn't Bigfoot that is doing it?

Why write hundreds of words about the economic effects of government debt without first making the effort to learn the most basic facts? I'm not talking about theory, which is complex and judgmental and subject to ideological influences. What's the inflation rate in the US and Japan?

Unbelievable.
posted by leopard at 9:39 PM on February 23 [7 favorites]

People want to work. There are jobs that many/most/all people think need to be done, but are not being done. Yet these jobs don't exist because it seems no one will pay for this. This is stupid.

Austerity isn't working and plainly doesn't make sense. If you think default is the best option, and austerity is number 2, and having the government borrow money at a real negative interest rate is number 3, then you have very strange ideas.

Debt doesn't matter. Debt to GDP _long term_ matters. But if you take steps to lower debt in the next year, put people out of work and destroy long term growth, you are going to increase debt to GPD long term. What's your goal again?
posted by jclarkin at 9:48 PM on February 23 [1 favorite]

The debate between Keynsiams and Austrians is starting to bear a weird resemblance to the debate between Batman and the Leauge of Shadows in Batman Begins.
posted by eagles12 at 10:05 PM on February 23 [1 favorite]

Predictions without timelines are useless, Malor. Put a date on it, and then we'll see if you're right or not.
posted by the man of twists and turns at 11:37 PM on February 23 [3 favorites]

No, paying what you owe rules.

Except the problem is that the very wealthy have all the money. It's time to take it from them to pay the bills. You can't take money from people who don't have any and expect that to solve the problem, can you?
posted by empath at 1:16 AM on February 24 [2 favorites]

What's the inflation rate in the US and Japan?

Do you understand how we measure (and what we fail to measure) in regards to inflation? Oh, do you know the price of oil in Japan currently, do you even want to discuss forex?

/facepalm
posted by Shit Parade at 2:35 AM on February 24

Ah, it's so exciting, living in 1813 again.

As a postscript to this article, there was a revealing piece which tells you all you need to know about the six-toed, born-to-rule pony fuckers currently running the UK:

The Oxford Student newspaper reported that a member of the Bullingdon Club was fined for setting off a firework at a nightclub earlier this month. According to the paper, the student was accepted into the club after an initiation ceremony which included burning a £50 note in front of a tramp.

posted by daveje at 3:06 AM on February 24

But in general, the austerity is being applied relatively evenly in the UK.

This is so far removed from the truth it's unreal. The gap between the richest and poorest is growing, and wealth is continually being redistributed from the poor to the rich. Even as benefits get capped, unemployment benefit gets a real-term cut, we see a 'bedroom tax' introduced on the working poor (as those claiming housing benefit predominantly are), the banks are paying out dizzying sums in bonuses, and corporation tax is being cut. Austerity is being applied far and away most strongly to those at the bottom.
posted by Dysk at 3:19 AM on February 24 [8 favorites]

One difference is that in Europe, the cuts are happening across the board. Regularly, City AM screams about the threat of Basel, Cameron, Brussels or someone cutting banker bonuses or increasing taxes. Granted, Hollande in France appears to have gone too far. But in general, the austerity is being applied relatively evenly in the UK.

Utter bollocks. Unless, you're being sarcastic perhaps?

A quiet reminder that one of the first, and most determined, taxation things the current aristocracy-centric government did was to remove the higher tax rate paid by the very rich. As of this April, very high earners pay a large chunk less in tax.

If that's austerity being applied "relatively evenly", then I'm a MetaFilter moderator...
posted by Wordshore at 5:20 AM on February 24 [2 favorites]

The Oxford Student newspaper reported that a member of the Bullingdon Club was fined for setting off a firework at a nightclub earlier this month. According to the paper, the student was accepted into the club after an initiation ceremony which included burning a £50 note in front of a tramp.

daveje, that being in that piece irritates the crap out of me. It's not relevant at all to the Israel debate, wasn't related to the people involved in that debate ("Not all students have immersed themselves in this debate. The Oxford Student newspaper reported that...") and appears to be in there purely as a pointless jab to Oxford on general principles. The Guardian isn't meant to be turning into the mirror image of the Mail.
posted by jaduncan at 5:26 AM on February 24

Shit Parade, I would love to understand how government debt in the US and Japan is causing both currencies to collapse against each other, that will be an interesting mathematical trick. If you have any evidence that 1 percent inflation is actually economy-strangling 50 percent inflation once you take into account some magical mystery adjustment, please share that as well. Also share the evidence that the price of oil is a function of government debt. In the meantime I'll interpret the image of you smacking your face with your palm as I see fit
posted by leopard at 7:53 AM on February 24

Definition of 'Bond Rating'
A grade given to bonds that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or its the ability to pay a bond's principal and interest in a timely fashion.


Well, seeing as the US, UK and Japan borrow in their own currencies, it seems to be a tad bit of a stretch to indicate that they might fail to be able to pay their bonds. I

n the US, the S&P downgrade was driven by our obviously broken political system since we have an extremest party with the power to cause quite a bit of damage. The UK has been the poster child for these people though with it's forced austerity, so I guess that they're admitting that they've been wrong all along here?
posted by CaffinatedOne at 9:35 AM on February 24

Do you understand how we measure (and what we fail to measure) in regards to inflation? Oh, do you know the price of oil in Japan currently, do you even want to discuss forex?

Do you? The price of oil is not connected to Japanese debt levels. It is connected to global commodity prices. How do we know that? Because oil is expensive all over the world - in every country. If the price of oil was high in Japan as a result of internal inflation, it would be limited to Japan - just as the price of goods rocketed up in Zimbabwe during their spectacular inflation... but nowhere else. Oh, you speak of forex? Well, here's an article in forexlive.com that explains the origin of high prices for oil in the Japanese context:

"Japan Gasoline Price Hits Over 3-Year High On Iran Jitters

TOKYO (MNI) – The average price of regular gasoline in Japan this
week hit the highest in nearly three and a half years at Y155.6 ($1.87)
per liter, or $7.11 per gallon, surging from Y152.6 in the previous
week, data released by the Oil Information Center showed on Wednesday.
It was the highest level since Y157.4 seen in the week of Oct. 20,
2008, and marked a fifth straight weekly rise.
The recent surge in refined petroleum product prices in Japan
reflects rising crude oil prices in global markets on heightened
tensions over Iran’s nuclear enrichment program and U.S.-led sanctions."

Yep, reflects "rising crude oil prices in global markets on heightened tensions over Iran". That's global oil prices - not specific to Japan, and having zilch to do with Japanese debt or due to Japanese inflation. And tensions over Iran are also not due to Japanese debt.

Oil is a particularly tricky commodity to use as an argument - I suggest that you investigate the concepts of headline inflation vs core inflation, when you single out a volatile commodity in your arguments.

What you want is to look at core inflation, because that describes the pricing pressures in the economy (underlying inflation) with accuracy. Standard economics. And core inflation in Japan completely demolishes your claims - by being... wait for it... negative. Japan has been weaving around zero inflation for a very long time now, with the vast majority of time spent in negative territory (deflation):

Japan Core Inflation Rate Chart

Inflation in the U.S. and Japan has been at historic lows for many years now. That is not really in dispute among serious economists. We can argue over headline inflation and what should count how, but that's an argument at the margins, because the fact remains that we are in a period of very low inflation dipping into deflation. How inflation looks, all you need to look to is history - what we have today is not inflation by any stretch of the imagination.

And debt levels (at least over the past few decades) plunging us into hyperinflation? Yeah, that's been predicted with such regularity that it's more like those doomsday predictions which are just sure, sure, sure to happen - only don't, at which point the kooks go back to their holy texts for another re-analysis for a new date, which also passes with nothing happening. When the predictions derived from your models have failed so spectacularly, it is time to revise your model, instead of "but, but, but this time". Krugman has great fun with these guys.

The reason for this mystery would have been very clear, had our intrepid doomsday predictors read an obscure guy by the name of Keynes. Instead, we read many posters here, who write prescriptions ripped from the latest economic thought... from the Hoover era. It's as if Keynes never existed. Amazing.

Debt levels are not at historic highs. We have room to expand spending and grow the economy. When the economy is shrinking, inflation is low (or in a deflation), supply is plentiful but cannot be met with enough demand because unemployment is expanding and people have less money, what's the Hooverian worst possible solution? You got it - austerity.

The problem has been the flip one - irrational allocation of resources and consumption in boom times (toward unproductive speculation and fiscal gambling among others) completely unbalanced with higher taxes and gathering resources for the inevitable down cycle in an economy. The way to rein in speculation was to dramatically raise taxes. But nobody has the appetite for taking the punch bowl away and shutting down the party. So we have bad policies in times of boom and in times of bust. Keynes must be spinning extra hard in his grave.
posted by VikingSword at 11:52 AM on February 24 [7 favorites]

On top of everything VikingSword said, when economies are actually being "strangled" by inflation, it is extraordinarily unusual to see:

-People and corporations hoarding cash (Apple has a $100 billion cash hoard)
-People lending money to the government for 10 years at interest rates of less than 1%
-Central banks targeting a 2% inflation rate

But yeah, other than these small issues, the similarities between current-day America and Japan and Zimbabwe are truly remarkable.
posted by leopard at 1:41 PM on February 24 [3 favorites]

If growth could be stimulated with additional borrowing, one would imagine that would be the path the government would have chosen.

Well that's exactly what Australia did - borrowed a shitload, and literally gave it to every Australian citizen over 18 as cash, among other measures. Worked, a treat, I must say.
posted by smoke at 2:33 PM on February 24 [1 favorite]

It seems to me that all of this public debt is held by private entities as savings (by definition). If we want to eliminate public debt, why don't we just start taxing savings. Seems like it would just move the money from one ledger to the other.
posted by empath at 8:49 AM on February 25

It's amazing how utterly economically illiterate people will post vast screeds here. With such lunatic beliefs as 'inflation is strangling the US economy'. And expect people to take them seriously.

Though it does provide a window into the mindset of the 'austerity can never fail, it can only be failed' people currently running most of the European economy. Mere reality has no meaning in the face of blind ideology.
posted by tavella at 10:33 AM on February 25 [1 favorite]

not really worth my time, but here you go

anyway, enjoy your screeds.
posted by Shit Parade at 3:14 PM on February 25

What do you think that shows?
posted by empath at 6:22 PM on February 25

not really worth my time, but here you go

Um... this is a link to the Amdollar/Jyen exchange rate from Jan29 to Feb25... and what exactly is this supposed to show? How does this relate to the topic at hand?

This is of course nonsensical over such a short period of time. This means less than nothing - it is the quintessential 'trading noise".

Of course a currency can relate to debt/inflation. So how do we apply it here? As happens, the Japanese Yen is an especially poor choice to illustrate the thesis that Japan is experiencing debt or inflation driven currency weakness, because they have had those debt levels for decades... and if anything for a substantial period of time, the Japanese Yen was a currency that people fled TO not FROM, thus strengthening it - entirely the opposite of the effect predicted by the inflation/debt doomsayers. Recently the Jyen has declined somewhat, but it is well within the band of trading movement - the yen has been much lower and much higher against a basket of currencies, so this latest small move means absolutely nothing.

Meanwhile, looking at the dollar/yen exchange is particularly nonsensical, because both of these currencies are supposed to suffer from the deleterious effects of debt and inflation (the latter entirely imaginary), so the movement against each other is supposed to show us what exactly? If you want to show the effect of debt (or inflation) show us the currency of a state with low debt vs high debt. The claim is that both the U.S. and Japan have high debt - so why show those two against each other? As happens the U.S. debt levels are not high historically, or against other major economies - there are plenty of the latter that have higher levels. Japan does have high debt to GNP levels among the developed economies. Yet neither currency is in free fall. Nor does either country have high core inflation.

Bottom line - that link is meaningless as pertains to the topic at hand.
posted by VikingSword at 1:42 PM on February 26

I think Shit Parade meant "not really worth your time."
posted by leopard at 2:29 PM on February 26