A long way from Geneva

I don’t think we will be paying negative bond rates on our debt anytime soon:

Credit ratings agency Standard & Poor’s has warned it could cut Australia’s coveted AAA rating if the federal government abandons the budget surplus in response to a global recession triggered by the European debt crisis.

The warning, which followed signs that Treasury is prepared to drop the long sought-after surplus target, came amid more evidence of economic weakness in Australian manufacturing and house prices, and signs that the European crisis was spreading to China, South Korea and other Asian economies.

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3 Responses to A long way from Geneva

  1. Andrew says:

    Another example of ratings agency dereliction. Though the fuller quote has “an extended delay in returning the budget to surplus would be inconsistent with Australia’s present rating” – so may be a beatup.

    Australia’s net government liabilities including the states amount to about 30% of GDP. What qualifies as a ‘risky’ level of debt?

    Another few years of deficits would mean our national debt is about half the size of Germany’s (who have an explicit guarantee on the smaller states so it could be argued this figure should be smaller), who have a AAA rating. Or half of Canada (who also have a AAA). Or how about the UK?

    Someone should slap these guys with these two charts:

    • Ricardo says:

      the thing about those charts is that the Australian Treasury takes out the Aussie States, but uses IMF data that includes the regions for the comparison nations. there is some funky stuff about treatment of assets and off balance sheet liabilities that’s also muddying the Australian Treasury’s water — but i think your point is stronger than these quibbles.

      • Andrew says:

        I know–it’s cheating, but doubling the columns is the approx the appropriate metric. I merely read the article and was too rapidly violently ill to compose a fair chart.
        No wonder debt-to-gdp is a better predictor of credit insurance than S&P.

        The welfare costs of these threats are large—S&P should at minimum state what ratio warrants a downgrade for each country.

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