Do you remember Iceland, not the shop but the financial giant which straddled the Atlantic fault line, that’s appropriate, several years ago the rating agencies gave Iceland a Triple A rating and all their Banks. Around the World they bought up assets, offering high interest savings accounts to all and sundry, a great deal was to be had by all. But as Madoff said “If it seems to good to be true, it is” and the Icelandic Banks failed. The great financial pillar that stood behind them was an illusion, savers lost all, councils and charities became beggars, West Ham was relegated. We all know that Iceland is a tiny country with a minute economy based on cod, but did the rating agencies understand this simple piece of economic reality, did anyone sue them for incompetence?
Now we come to Japan. For years the Japanese have been trying to reduce the value of the Yen, after all it’s a trading currency, everyone does business with Japan, no options. They borrow money at virtually zero interest, even though they have a Debt to GDP ratio of 200%, and growing. Along come the rating agencies and downgrade Japanese Debt, again and again, but the Yen stays stubbornly high, the markets are saying quite clearly, “I think you have got this wrong”. Shock horror the agencies have got it wrong, I cannot believe that.
How stupid can people be, well last week we found out, Standard and Poor, decided that The United States of America was a credit risk!
Well I for one just do not get it. The biggest economy is a risk? risk of what, default? don’t talk such rubbish! Because the Government saved all the financial institutions, AIG, Fanny and Freddy, Banks to numerous to mention, Ford, Chrysler, all pulled out of the fire, but at a cost to the public purse. Transferring private sector Debt to Public sector Debt and the taxpayer, that’s not capitalism.
You hear all these clever financial guru’s saying the government doesn’t know how to handle money, well I suppose it would have been better for all those companies to go Bankrupt, after all that is how capitalism works isn’t it? Perhaps they should have stayed out of it completely. Next we hear from very patriotic CEO’s who would rather do business with an authoritarian Dictatorship than with their own country, because Democracy is messy and decisions take longer.
Dictators point at the people and say “Kill them”. At a beautiful countryside and build a poisonous landfill destroying the water supply. These are the type of people they like to deal with. An easy answer to America’s problems is to bring back a proportion of the manufacturing which has been exported to China, swelling the coffers of that country and a vast number of American companies.
Question, how many computers are made in the USA? How much electronic equipment is made in the USA, that’s how you can solve some labour problems.
Is America going to default on it’s Debt? of course not. This is just sabre rattling, the agencies showing they are on the ball. But in reality, it shows them once again to be totally out of touch with the real world. They are the people who are irrelevant to what is really happening, leave it up to the markets to decide if a country’s debt is at risk, just look at the interest rates for sovereign Debt, Portugal, Ireland, Greece and now Italy and Spain, that tells you all you need to know.
Forget the Ratings Agencies, just laugh – or sue!