Ah…Australiana, long on opinion, short on sense. From the uber optimists at Crikey:
Standard & Poor’s is the firm that downgraded the United States government from triple-A in 2011, with the rationale that the gridlock and brinkmanship in the US Congress over the budget had undermined “the effectiveness, stability, and predictability of American policymaking and political institutions”. S&P also downgraded France and several other countries on a similar basis. S&P now appears to be laying the groundwork for a similar observation about Australia if the Senate blocks key elements of the Abbott government’s budget.
…Global interest rates are likely to stay at their current low levels for the next couple of years (some former central bankers reckon five years) because of low inflation and the continuing impact of quantitative easing…And besides, ratings cuts haven’t altered the ability of the US to borrow, nor have negative outlooks damaged the UK’s borrowing costs. And all those pariahs in the eurozone — Italy, Greece, Spain, Portugal, Ireland and France — can all now borrow at rates much cheaper than at any time in the past eight years or more. In normal times, credit ratings have an impact on borrowing costs, but these are not normal times and won’t be for several more years as the global economy and the global financial system recovers from the devastation caused by the GFC.
A loss of our AAA rating would result in more downward pressure on the dollar, which in turn would be welcomed by exporters and tourism operators. Beyond that, the economy would not be damaged one bit.
And from the SMH:
“I don’t know whether anyone really pays attention to sovereign credit ratings anymore. There’s no question that Australia’s debt metrics are among the best in the world… and if we were to lose the triple-A rating I don’t think it would be significant for our bond or equity markets,” he said.
“Ten years ago I think it would have had a much greater significance. The issue is the GFC questioned the whole way people use credit ratings because a lot of the issues that blew up were triple-A rated.”
I lost him at “I don’t know”. No doubt The Pascometer will follow this afternoon.
I’m out of energy fighting this lineup of jingling opinions for today. I’ll simply note in passing that the entire discussion neglects to mention the link between the sovereign rating and the bank ratings and is therefore absent merit. Also, the idea that ratings don’t matter is nice in theory but fraught in practice given that despite the push against the CRAs they remain central to portfolio allocation worldwide.
With that off my chest I can join the conga-line of can-kickers. Let’s allow our credit quality to whither instead of facing and reforming our structural issues (which is not to say that this Budget does that either). Let’s pretend that we have the same capital attracting power as the US dollar, euro and the pound even after the China boom passes. Let’s assume, forever more, that Australia is different!
