US AAA rating - how much longer???

Sunday, April 03, 2005

Being contempt to see there are at least more than just a handful of analytical humans that do not get blinded by the nervous - and by now contradicting - Fed comments/speeches/minutes, I am just missing one important issue here: How long can the USA sustain it's AAA rating?
Everybody knows, S&P and Moody's didn't foresee the problems at Enron and Worldcom up to the moment of collapse. OK, the cos. dodged the books, and a credit analyst HAS to rely on the data provided to him.
But when will these so called independent credit analysts wake up to the horrendous worsening of most US economic indicators?
Assuming there are no ready to shoot tanks in front of the ofices of Moody's and S&P,
I wonder what keeps the rating agencies to hold on to the AAA rating for a country that has the highest public and private debt ever seen in history and absolutely no plans to cut back on their war-induced spending!?
Having been professionally concerned with credit risks on the corporate and emerging markets levels, I cannot remember a case where a good rating has been untouched when you already could see a dramatic decline in the value of the currency, no plausible solutions to the twin deficits and now the plan to raze social security. Oh, not to forget the cost of the war (what's your guess on the effective US subsidy on every barrel of oil coming out of Iraq?)
These are all signs of a carnival policy - just let the good times roll at interest rates that don't even cover inflation.
Normally the skyrocketing advance of debts should initiate a rating review. Who will touch that hot potato first? Or is this just another example of covert government influence/pressure in order to keep the party going a little longer?
In my opinion, any corporation in the world would have seen their rating dwindle to at least a single A rating! Will this system only be brought down in a standoff between investors and the Fed where the rating agencies will have been squeezed out because of their politically motivated ratings that have diverged too far from reality as still to be considered rational? Foreign investors are already beginning to vote with their feet and reduce their $ holdings. When will the rating agencies open their eyes again and see these facts? Or are they coerced into sticking with their AAA ratings because a deterioration could be the final straw that will nosedive the share markets?

2 comments

Anonymous said...

I like your articles. Maybe you already do write for the press, but if not, I suggest you do regular (paid) contributions to the UK financial press. Try a sample to The Independent on Sunday (Financial Section) and also the Mail on Sunday (Financial Section). The public would be interested in your research and prognosis.

12 April, 2005 23:36

nice blog.. i enjoyed reading this. please continue posting blogs like this.

15 July, 2012 15:20

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