As we all know by now S&P was out with a report downgrading UK sovereign debt to negative from stable.   They said:

“We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term,” Standard & Poor’s credit analyst David Beers said. “We base our opinion on our updated projections of general government deficits in 2009-2013. These projections reflect our more cautious view of how quickly the erosion in the government’s revenue base may be repaired, the extent to which the growth in government spending can be curtailed, and consequently the pace at which historically high fiscal deficits are likely to narrow.

Our projections also incorporate updated estimates of the cumulative potential gross fiscal cost of government support to the banking system, which we now estimate to be in the range of £100 billion-£145 billion, or 7%–10% of 2009 estimated GDP. Taken together, these factors could, in our opinion, result in a doubling of the general government debt burden to nearly 100% of GDP by 2013.

A government debt burden of that level, if sustained, would in Standard & Poor’s view be incompatible with a ‘AAA’ rating.

The rating could be lowered if we conclude that, following the election, the next government’s fiscal consolidation plans are unlikely to put the U.K. debt burden on a secure downward trajectory over the medium term,” Mr. Beers said. “Conversely, the outlook could be revised back to stable if comprehensive measures are implemented to place the public finances on a sustainable footing, or if fiscal outturns are more benign than we currently anticipate.”

If you didn’t know any better you might actually think they were talking about the U.S. in this report.  With ballooning debts and sharp declines in tax revenues you have to wonder how long the U.S. is actually a AAA country.  More importantly, you have to start wondering if all of this spending to help some bankers in the short-run will turn out to help the country in the long-run.  I certainly hope so, but the outlook doesn’t look so good right now.

Source: S&P