Tag: Credit rating agency

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Humour Politics

Reasons To Vote Yes

Moody, Standard and Poor

There are good and bad arguments in favour of the fiscal compact. Well, better and worse anyway. But one stands out as being truly, shockingly, jaw-droppingly appalling: We should vote Yes because it will improve our credit rating. As if Standard and Poor and Moody and Mean don’t have enough influence.

It’s probably quite true of course; being a nice obedient populace is something they give bonus points for, no doubt. But it makes me think, why stop at voting? There’s loads more we could do to make ourselves look better credit-wise.

  • Stop holding those nasty unpredictable votes altogether. A country run by committee – especially a committee of appointed, imported technocrats – will be far more predictable than any democracy. Markets like that.
  • Execute the old. Seriously, think what that would save. And others who are a burden on the public finances too, like the mentally and the physically disabled. Or to use the more acceptable modern term, the economically disabled.
  • As is universally acknowledged, lenders only want to lend to you when you don’t actually need the money. Therefore we should repudiate all our debts. Including of course debts the government owes to citizens, such as pension and welfare commitments.

I only scratch the surface here I’m sure. There’s no end to what we could borrow, as long as we forget why.

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Politics

They Really Are Out To Get You

©Crookedtimber.org
Goalposts In Motion (click to enlarge) ©Crookedtimber.org

Many have asked recently whether ratings agencies like Moody’s, Fitch, or Standard & Poor’s really are the neutral commentators they claim to be. Do they provide advice to investors without fear or favour, merely giving their assessment in a disinterested way? Or are they out to get us?

To think the latter would seem just downright paranoid. And yet… This post on well-respected politics blog Crooked Timber suggests that there is something rather difficult to explain going on with the agencies’ assessments of the Irish economy. Every time Ireland complies with the conditions of the EU-IMF deal by cutting spending, the agencies downgrade it further. This downgrade means that the goal of raising money on the markets moves still further away.

Let’s just repeat that – the more we cut our budget spending, the less likely it is we’ll be able to borrow the money we need to pay for our budget.

It really does seem they’re out to get us.

Why would they be? They’re not there to frustrate our economic recovery or undermine the EU’s plan. They’re there to give the best advice to investors. That’s how they make their living.

But wait – Can’t it be both? The thing is, the ratings agencies do not – cannot – issue predictions while pretending the prediction itself is not going to influence the market. If they did, the predictions would be wrong. They must have long accepted that they help shape the market they pronounce on. Yes, they are there to give good advice to their clients. But that can mean giving advice that is good for their clients.

They also know that when a currency collapses, there’s a killing to be made. The Euro’s fall could be the biggest free money explosion in history, and what easier way to cause that fall than to bring down one of its more vulnerable economies?

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Politics

The End Of The Euro Crisis?

The economic growth of Portugal, Italy, Irelan...
Economic Growth - Or Lack Thereof

I hate the silly term double-dip recession. It makes it sound like there is some sort of mathematical explanation for this graph, a predictability about it. What we have is false recovery, the kind that only happens because markets work on the assumption that recessions will come to an end out of some sort of natural pattern. Would-be investors wait for the whole boom-bust cycle to start all over again so they can get in at the bottom. The brief spurts of growth we see are like sprinters waiting too long for a race to start. They dash off alone, only slowing to a halt when they realise no one’s joining in.

We are not recovering yet because, simplistically put, we have not yet reached the bottom. More accurately though, we can’t rebuild an economy when there is so much non-existent money in the way.

We need to face up to the fact that the western economy is still stuffed to the ears with bad debt. We are treating bad investments that will never yield a damn thing as real money that somehow must be paid back to the investor – even if the taxpayer has to be made to do it. But it’s not real money. These are failed investments. The money has been lost. It no longer exists.

This blog post is highly speculative, but it argues that the sudden willingness of European banks to take a loss on Greece is because they foresee things getting much worse, soon. One of Italy’s largest banks is stuffed with bad debt, and it seems more than likely that if it goes, the Italian economy will go with it. The Eurozone cannot afford to bail out a country that large.

But this is actually a good thing. We will finally have to stop pretending this can be fixed with bandages, and do the major surgery necessary. It will hurt, but not as much as treating innocent taxpayers like reckless debtors hurts.

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