No, it wasn’t priced in

The link is to a Bloomberg piece by Megan Greene, who I met at Kilkenomics this year. Anyway, she uses the ‘the debt rating was priced into the market’ cliche which is wrong because if that were so, the pound would not have dropped like a rock off a cliff on Friday. This is just ‘MSM talk’ meant to calm the masses and it’s untrue. Then she goes on to explain how this downgrade will goad policy makers to go easy on austerity and open up the flood gates of spending and that’s a good thing. No, not really. The only thing keeping the pound and UK Gilt market up these past 2 years has been the promise of fiscal restraint. Will increased government spending boost GDP? No. The debt load in the UK (inclusive of all public/private debt) is now close to 1,000% of GDP. Adding more debt with more spending will not boost GDP but it will increase inflation a lot sooner. In any case, no policies in the UK will promote growth without the government first breaking up the TBTF banks who sit like trolls under the bridge connecting the BoE and the ‘real economy.’ They grab the money as it comes off the presses and hoard it; buying gov’t bonds; buying their own bonds, buying other bank’s bonds to try and keep the Ponzi scheme going until the next bonus season.