Jeremy Warner: No risk of default when inflation can do the job
Wednesday 29 April 2009
Outlook I'm ever more puzzled by a note from Moody's last week suggesting that the British Government's triple-A credit rating may be in danger if after the next election firmer action than envisaged in the Budget isn't taken to bring down the fiscal deficit.
Credit ratings are meant to measure the risk of default, and if a government is borrowing in its own currency, then the chances of a sovereign nation defaulting are virtually zero. This is because if the worst comes to the worst, governments can always turn on the printing presses and honour their debts simply by expanding the money supply.
This would be very bad for the currency and inflation, but these are rather different risks than that of outright default, even though in practice they may amount to much the same thing. Inflating your way out of debt is in most respects just as dishonourable as straight default.
True enough, Britain's record on outright default is not entirely faultless. In 1932, it slashed the coupon on war loan. Though this was linked to abandoning the gold standard, it was nevertheless an act of default – a first and hopefully the last. In any case, it is not entirely clear why Moody's thinks there is a present-day risk of default. Debt raised in a foreign currency is a different matter, but there is not much of that in the mix of UK national debt. It is also a different matter for peripheral eurozone nations such as Ireland, where there is no matching ability to print money to pay off debt.
- 1 Man who was struck and killed by lightning in Brecon Beacons 'was carrying a selfie stick'
- 2 Lisa Randolph-Gant: Queen Elsa cake maker says she will carry on baking and will not let people 'break her spirit'
- 3 Tube strike: This pedestrian-friendly map tells you the time it takes to walk between stations
- 4 Pamplona Running of the Bulls 2015: Three men gored and 10 hospitalised on first day of festival
- 5 Sarah Jessica Parker explains why she is not a feminist: 'It's not just about women now'
Man who was struck and killed by lightning in Brecon Beacons 'was carrying a selfie stick'
Greece debt crisis: Greek future in the euro slips into deeper uncertainty as Alexis Tsipras arrives at emergency talks without a written plan
Man soars over Calgary after tying 110 balloons filled with helium to his lawn chair for PR stunt, gets arrested for mischief
Tube strike: This pedestrian-friendly map tells you the time it takes to walk between stations
Pamplona Running of the Bulls 2015: Three men gored and 10 hospitalised on first day of festival
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
Greece debt crisis: Angela Merkel and Francois Hollande issue Athens with 24-hour ultimatum to avoid crashing out of the euro
Greece crisis: Referendum exposes a gaping hole at the heart of the European Union – its lack of genuine legitimacy
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...