A year ago yesterday I was on a flight to the US. We'd had a summer of fears over Greece, bond market turmoil and once again weakening economic growth and I was glad for a 10 day holiday in Florida with my family. I was day dreaming about basking in the sun, flying around on jet skis and immersing myself in the fineries of American cuisine (i.e. pigging out). This was not to be.
Now, I am not a nightmare to holiday with or a workaholic, I just like to keep in touch with the world and what is going on. Switching on my BlackBerry upon landing at Orlando International the typical texts came over. Vodafone welcomed me to the United States (thanks), someone said I could claim money for some mis-sold PPI (thanks, but no thanks) and one came through from a mate back in London. It simply read "S&P have cut US credit rating. Great terror".
I thought it was a typo. Why the US? There had been rumours about the UK rating since before the general election but no, he was correct, it was the US. I immediately wished I had drunk more on the flight.
The reasons were simple. In S&P's opinion the fiscal consolidation plan that Congress and the Obama administration had recently agreed to, fell short of what it thought would be needed to bring the country's debt dynamics to heel. The debt ceiling had been raised in February of 2010 to north of $14trn, and by May of 2011 this number had been hit. The fear, come August, was that if the debt ceiling was not raised we would see the US default on its debt. As my friend had put it - "Great terror".
Since then, Armageddon has been delayed and the envisaged sell-off in US debt and assets has not materialised. US borrowing costs across the curve (i.e. from short-term debt of a couple of months to the longer-term bonds over 30 years) have fallen to all-time lows as they have remained in demand, while US stocks are at 16 month highs. Similar moves have been seen in Canada and Japan following cuts to their AAA rating.
Danny Alexander, the Lib Dem Treasury chief secretary, has come out this morning and said that a AAA rating in the UK is not the "be-all and end-all". He is right.
Sure, a treble-A rating is a nice thing to have but should not be the main driver of economic policy in government. Our borrowing costs are at, or close to, all-time lows, while the FTSE 100 is currently at four month highs.
Recent transmissions from the ratings agencies about the UK have been mixed. S&P have maintained their stable outlook while Moody's have been rather more severe by keeping their stance on a negative footing. The arguments for a downgrade are well known and obvious; high debt, low growth and everything in between. However, with the US downgrade in mind, the question is; how much does a ratings cut really matter in the grand scheme of things?
As most of us are on holiday now or heading off for one soon, the nation is now firmly immersed in a state of summer relaxation - boosted by the euphoria of Team GB's golden run and the Olympic Games. When it comes to the prospects for our credit rating, the government should embrace the summer spirit and, as Dave would put it, 'chillax' a little too.