Monday, February 25, 2013

What does losing the AAA rating mean?

The effects should be :-

1) Rally in the FTSE 100 due to influx of Foreign Capital.
2) Increases in house prices in London due to influx of Foreign Capital.
3) Increase in inflation on imports (from food to fuel) and hence for your average consumer they will have less to spend beyond basics
4) Increased tightening of consumer wallet as they perceive they have less to spend
5) Weakening of our real economy due to consumers reduced ability to spend
6) Higher rates of failure of UK based business.
7) No significant increase in exports (we're not an export led economy and there has been too little investment in this area).

Overall, bad news ... not as bad as another round of QE. Despite the weakening of the internal economy, the FTSE will rebound and house prices (in London) will be maintained because these have almost no relation to the real economy.

But don't worry, our friends at the Federal Bank will probably bury the US economy further with another round of QE which should strengthen the pound again. They'll need to do this in order for us to have another round of QE in our tireless race to the bottom.