The debate continues: Is the UK, with its oversize banking system, the next Iceland, or is it the US, a rotten economy that still looks unlikely to have a spectacular implosion (knock on wood)?
The latest signs push them closer to the Iceland category. Moody’s has come out and said the nation’s finances are “deterioating rapidly”. For now, the ratings agency has kepts its AAA rating on the UK with no intent to change it. But investors, obviously, have been punishing the pound this year.
And as David Goldman notes, CDS on its bonds trade at the same level as Brazil, which is pretty astounding, though Brazil as we keep hearing is the “perfect economy” for this recession.
As for the US, obviously some of the same concerns apply, but it’s not quite as much of a mess, if only because the size of our banking system never reached as many multiples as our GDP as it has in the UK and Iceland. It also happens to help that for now we still have the world’s reserve currency.
But spending is soaring, and tax receipts are awful. A stat we heard yesterday is that corporate tax receipts are down by some 60% this year, which is why borrowing has quadrupled.
The UK and Iceland are canaries in the coalmine. Let’s hope someone’s paying attention.
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