One of the same, government dependent, “private” credit rating agencies who rated mortgage backed securities as “Triple A” (because Barney Frank and Chris Dodd, and the rest, were determined that reason would not stop the “affordable housing policy” and the lenders had to dump the crazy mortgages somehow – and, besides, Alan Greenspan Federal Reserve was backing up the building of a pyramid of debt upon them in spite of complaining about it from time to time) is now saying that there is no threat to the “Triple A” rating of United States government debt.
No doubt questions as to the soundness of this judgement about United States government debt will be met with the same response as such questions as “are you sure these people will pay back their mortgages” were. Namely a look of contempt saying “you are so simplistic, you do not understand the first elements of these complex matters – it does not even matter who the mortgages are to, the financial instruments that important people deal in are only distantly related to such basic things”.
However, please note the get out clause:
As long as the United States government takes action to reduce the national debt.
Both short term, “stimulus”, action and long term, health care “reform”, action is all about increasing the national debt. So when the house of cards finally collapses the credit rating agency will be able to say “What are you complaining about? We warned you!”
Which is a stronger play:
The US Government – ‘That’s a nice credit ratings industry you’ve got there. It’d be a shame if something happened to it’. [eg further regulation and making them scapegoats]
Or the Credit Ratings agencies – ‘That’s a nice credit rating you’ve got there. It’d be a shame if something happened to it’.
Massive debt splurges have downsides that cannot be massaged away. It is paramount to the credibility of the ratings agencies that they do reflect Government debt in their ratings of those Governments.
How credible are their ratings anyway? The banking crisis has shown their metrics up for what they are – snapshots in time with an armful of caveats.(For that is the excuse they give over their rating of financial products.) The rating is valid when it was made and no more but the financial sector came to believe otherwise. If that is the best metric for assessing financial products, Governments and businesses we need another metric, or better yet, no metric. If something is too complicated for you to understand then don’t invest in it. If something is too complicated for many people to understand it won’t attract investment.
A production line mentality to finance and running economies isn’t working. A diffusion of skills, knowledge, authority and accountability has created a massive grey area through which we have been flying blind and by the seat of our pants. If we are to have regulation, guidance and steering of economies then it must be done properly with a clear focus on goals and a cast iron path of accountability to traverse when things go wrong.
Take the Bank of England MPC – AFAIK The Governor is only nominally in charge but the other committee members do not carry the can for bad decisions. The committee mentality is a poor decision making one. It serves to diffuse responsibility and when you lessen the consequences of choices people invariably end up making the wrong ones. Either let the Governor set the rate themselves and let the responsibility be theirs alone, or let the market set the rate. With a committee no one shoulders the responsibility of the decisions.
As it was, in 1997 it was decided not just to move the decision making process out of the Treasury’s hands but change the way that decision was made as well.
The US government has the absolute ability to tax as much as it chooses, and to inflate the currency into abject worthlessness. The question addressed by the rating agencies is whether the US government will nominally default on its sovereign debt. I think the answer to that is “not too likely”; the government will simply print as much currency as it needs. Whether it will honor those obligations with a currency whose value approaches that in which the debt was incurred is the more important question, and again I think the answer is “not too likely.” In other words, the debt will be repaid with a debased currency having substantially reduced purchasing power. That is the real risk for anyone investing in US Government bonds (notably China), and that is why the yields demanded by investors will inevitably rise.
The notional credit rating of the US government is relatively meaningless to anyone whose views matter.
A side question: I know the three primary US-based rating agencies (Moody’s, Standard & Poor’s, and Fitch), and recently I read that two new companies (I don’t know their names) are to be permitted to issue ratings on “investment-grade” securities. Are there any non-US-based rating agencies of similar stature? It would seem to me that there would be an opportunity for a London-, Paris-, Tokyo- or Hong Kong-based agency to begin issuing competitive ratings, since the reputations of the US “Big Three” would seem to have been seriously tarnished. Does anyone know if there are any such?
As I’ve said on a number of threads here, the only way the American people can keep the American government from borrowing and spending every penny it can get its hands on is to destroy its credit rating by proposing to default on new US debt at the next change of power.
The end result of this incestuous relationship is the same as occurs whenever such closely related bodies become intimate—idiot children.
Unfortunately, they’re running the country.
It’s like “Deliverance” without all the banjo music.
“It’s like “Deliverance” without all the banjo music.”
Yes, but in this case we ALL get to squeal like a pig. Due to living in NJ, I’ve been warming up for years.
I never thought I would read the following words (let alone that I would write them), but it looks like “New Jersey is the future”.
Still you have seen the future tomwright and you know it does not work.
Let us hope that “compassionate government” takes a knock in New Jersey in November – if so then “New Jersey is the future” may have a good side as well as a bad side.