Moody’s Investor Service, one of the three major credit rating services, took a move last week that is sure to send some shockwaves across Europe. Moody’s lowered the United Kingdom’s credit rating due to the debt that will continue to weigh on the country:
Moody’s lowered the U.K.’s domestic and foreign-currency bond rating one notch to Aa1 and changed its outlook to stable. It is the first of the three major ratings firms to do so, though both Standard & Poor’s Ratings Services and Fitch Ratings have the U.K. on negative outlooks.
The move by Moody’s is a psychological blow to the United Kingdom, which is fiercely proud of its historical position on the world stage and keenly attuned to signs of its diminishment. It is also a political blow to Prime Minister David Cameron and his chancellor of the exchequer, George Osborne, who has long justified his painful government spending cuts on the grounds that he is maintaining the U.K.’s triple-A rating.
“We expect the country’s debt will continue to grow in coming years,” said Bart Oosterveld, managing director in charge of Moody’s sovereign ratings group, in an interview. “In our central scenario, we don’t expect the country’s debt burden to stabilize until 2016.”
Cameron had enacted a series of austerity measures, which were met with protests and derision from opponents, aimed at curtailing the United Kingdom’s sizable welfare state. Unfortunately, these measures weren’t enough to keep the country’s credit rating in tact.
The United States has already experienced some degree of this. Back during the debt ceiling fight in 2011, Standard and Poor’s lowered our long-term debt outlook after it determined that the sequester plan fell short of stablizing our debt burden.
What happened to the United Kingdom last week should once again serve as a reminder to Washington that we’re not far off from a similar backlash due to our own fiscal burdens. The Congressional Budget Office recently warned that the level of debt that is expected over the next 10 years, which will be driven by entitlements, “would have serious negative consequences” on our economy.
The CBO report explained that “such a large debt would increase the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”
Unfortunately, President Obama and Democrats in Congress don’t take this prospect seriously. Rather than addressing the looming entitlement crisis, President Obama is pushing policies that will only hurt our prospects for economic growth, including more spending and more job-killing tax hikes.
Take a good look, folks. The United Kingdom, which has still not worked its way out of a recession, is our future.