UK in danger of credit downgrade

Standard & Poor's said UK government debt could approach 100% of GDP in the medium term, prompting the ratings agency to warn that the country could lose its coveted triple-A credit rating.

S&P believes, "A government debt burden of that level, if sustained, would in (its) view be incompatible with a 'AAA' rating."

The deficit as a percent of GDP in the US is below 80%, depending on how you measure it since unfunded liabilities generally are not included, but it is rising quickly. With the deficit looking to reach almost $2 trillion in the US this year and at least another $1 trillion in the next fiscal year, it's reasonable to ask whether the US may lose its triple-A credit rating. Or at a minimum, be placed on CreditWatch for possible downgrade by a major agency.

That seems unlikely in the near-term because US capital markets are deeper than anywhere in the world, and the US still has considerable capacity to borrow. Nonetheless, banks are saddled with bad loans and there is a need for the government to provide some type of solution.

In addition, grand spending plans by the current administration do not seem to have been derailed by the economic crisis, so the situation bears watching. Or... just read between the lines, i.e., hold on to your wallets!