Thursday, January 27, 2011


The rating agency Moody’s Standard & Poor’s downgraded Japan’s sovereign debt to AA2, saying that the Japanese do not have a “coherent strategy” for dealing with its chronic indebtedness.

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Note that Moody’s Standard & Poor’s acknowledges the ease with which Japan can fund its deficit—unlike other countries that currently have Triple-A sovereign debt ratings, such as France, Germany and the United States, but which have had to carry out some, shall we say, unorthodox strategies, in order to keep funded.

Indeed, as we’ve been harping here, the only reason the U.S. has been able to fund its FY 2011 deficit with relative ease is because the Federal Reserve is purchasing 60% of it, half of the FY 2011 deficit through direct monetization via QE-2—in other words, money-printing.

Will Moody’s Standard & Poor’s downgrade U.S., EU or UK sovereign debt? Sure—and BTW, I’ve got a bridge I’m looking to sell. It’s out in Brooklyn—it’s older, but a tremendous opportunity for the right buyer.

Moody’s Standard & Poor’s is simply trying to re-establish some semblance of respectability. Consider all the investment-grade ratings they gave to all those toxic assets that blew up: Moody’s Standard & Poor’s and the other ratings agencies are still like the village whore that’s trying to turn her life around . . . though she’s still whoring, so everyone knows it’s a totally cosmetic exercise.

Compare the U.S. Treasury bond’s Triple-A rating, and compare it to the Japan downgrade: The fact that Japan really doesn’t have any sort of idea how to cut its deficit (which is the rationale for Moody’s Standard & Poor’s downgrade) really doesn’t mean anything, because the Japanese have no trouble funding the deficit with home-grown buyers for its debt.

But the U.S.? Chulo, please . . . Treasury depends on Fed monetization to cover the deficit—need anything else be said?

If Moody’s Standard & Poor’s had downgraded American Treasury bonds to BAA1—which most serious people would agree is a reasonable rating for U.S. bonds, considering the likelihood that the only way the United States will ever get out from under its mountain of fiscal debt is by inflating away the problem—then one could take these guys seriously. But leaving America’s Triple-A rating makes the whole exercise academic.

Bottom line: Ignore the ratings agencies, they are irrelevant.

Update: A mental glitch was responsible for the reference to Moody’s, rather than Standard & Poor’s. Apologies and self-flagellations, as required.

1 comment:

  1. Moody's and S$P , what a joke both of them. Their AAA rating to that rubbish housing paper that was being flogged.......that was fraud pure and simple , yet I have not seen the S.E.C. investigating or laying any charges.
    Far better we rely on the new Chinese rating agency for honest ratings.


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