Have a laugh!! – S&P
threat to downgrade U S national debt.
1) Rating
agency Standard & Poor issued a negative outlook on April 18, 2011 on U S
Government debt that made headlines around
the world.
But wait who is S&P kidding? Have S&P analysts forgotten one fundamental fact? Only the U S government can ever
print Greenbacks! No other nation can do so, certainly not legal $ tender. Apply that simple logic. Therefore
national government ratings for domestic currency borrowings will always be
Triple A plus. All other ratings, will be lower in the pecking order.
It is a different matter if the U S sovereign borrowings are
in Euro or in Yuan or in other currency. A down grade would have been perfectly
in order, because, the U S would neither be able to earn in these currencies or
service debt in these currencies without export earnings or capital account
flows. So in Euro or in Yuan or for that matter in any other world currency U S
sovereign rating will not be Triple A plus. It could be far lower. The reverse
is also true.
In August of 1971when President Richard Nixon unilaterally
abrogated the gold standard. It was a sovereign default. S&P came into existence in 1860 and the the first sovereign credit rating of the U S was in 1916.But there were no rating surveillance in 1971. Instead the greenback became
Eurodollars!
2) U
S external and internal debts are denominated in $. So the US government can
afford more monetization of its debt with little or no increase in taxes. U S
Federal debt is currently 93 per cent of the GDP. Japan is 210 per cent. Japan
continues to remain AAA.
U S has a tax to GDP ratio of just 9.5 per cent,
which is the same as that of India. Even tiny Madagascar, riled by the global
media, has ratios higher than the U S at 13 per cent. Yet S&P rating on
Madagascar is "B" five notches below investment grade. So will S&P bring the U S sovereign below Madagascar?
3) Dollar
devaluation ploys
The threat to review rating appears to be to clearly
motivated to deflate the value of the $ and a follow up to more
quantitative expansions. A $ sell off by the rest of the rest of the world,
China, Japan would automatically result in pushing the value of the $ or strengthening
the Yuan and the Yen. Neither of these steps is likely to happen, since all of
China's, Japan's and for that matter the rest of the world's exports are
invoiced in greenbacks. So the $'s supremacy is not likely to be challenged in
the foreseeable future.
4) S&P
steps : Credit Rating Agencies lack credibility and integrity.
Credibility: One year U S treasury yields
remained at 0.24 per cent, one BPS below the Fed Funds Target rate. Five year
debt is 2.09 per cent, 20 bps below what it was a month ago. A rating drop would have normally scrambled
bondsters to a sell off. So much for S&P's outlook on U S debt.
Besides there was no downgrade of AIG before the collapses began. It was only in September 2008, when AIG stuck with the Credit
Default Swaps went almost belly up that rating agencies got together.
Integrity:
And Citi, JP Morgan Chase, and Bank of America continue to
be in A, AA and A categories respectively. These institutions still have white washed toxic
assets on their books. The combined
toxic assets of the top 25 U S banks are $13 trillion. These assets
range from dud mortgage backed securities, Collateralised Debt Obligations and
Credit Default Swaps. So more bailouts, by way of Fed purchases of toxic assets
appears likely, that will inevitable translate into QE3. There are no bailins
by the share holders, instead all the top executives continue to draw fat
bonuses. It is only the borrowers and home owner that have insolvency and
despondency staring at them.
5) Rating
agencies have always benefitted from Regulatory Forbearance, lots of power
without any accountability. Not to mention the billions of $ fees collected in
Ponzi rating schemes for beguiling investors around the world. Time to
downgrade the raters? Or is S&P also on the way to insolvency and is making
an attempt to salvage reputation in an intensively savage ratings market? Or
is internecine rating agencies' competition becoming a repeat of Coke vs Pepsi
battles?
