S&P has decided this week to downgrade Spain from its AAA rating to AA+. This means that suddenly, S&P considers that Spain is not a sovereign state anymore, because they are in the Euro zone and cannot take with their money the sort of liberty that other sovereign states are (like the US or the UK).
In clear this means: underwrite an awful lot of debt, print money, buy back your own bonds, nationalize your banks, bail out your entire industry (or what is left of it), then print some more money and you will keep your AAA rating. Do none of these, try to keep your government's expenditures under control and you will loose it.
For those who may wonder, the Spanish public debt is currently representing 36% of Spain's GDP. It was 44% in the UK last year, 60 % in the US (that was before the 3 trillions USD waste), 63.9% in France, 64.9 % in Germany and a massive 170% in Japan. They are all AAA except Japan, being AA- or A2 depending on the rating agency.
How comes we have the worst ratings at both end of the curve ?
According to Moody's, what happened to Spain cannot happen to the UK, because the UK is not a member of the Euro and therefore remains a sovereign state...or let's say just a little bit more sovereign than Spain. So how sovereign is Japan then ? Does all this make sense ?
Obviously not. Just like it did not make sense to rate AAA a number of securitised sub-prime mortgages. These ratings are not only complex, meaningless, and often useless, they have been turned into ridicule in the last twenty months.
Let's shut down the rating agencies...now.
In clear this means: underwrite an awful lot of debt, print money, buy back your own bonds, nationalize your banks, bail out your entire industry (or what is left of it), then print some more money and you will keep your AAA rating. Do none of these, try to keep your government's expenditures under control and you will loose it.
For those who may wonder, the Spanish public debt is currently representing 36% of Spain's GDP. It was 44% in the UK last year, 60 % in the US (that was before the 3 trillions USD waste), 63.9% in France, 64.9 % in Germany and a massive 170% in Japan. They are all AAA except Japan, being AA- or A2 depending on the rating agency.
How comes we have the worst ratings at both end of the curve ?
According to Moody's, what happened to Spain cannot happen to the UK, because the UK is not a member of the Euro and therefore remains a sovereign state...or let's say just a little bit more sovereign than Spain. So how sovereign is Japan then ? Does all this make sense ?
Obviously not. Just like it did not make sense to rate AAA a number of securitised sub-prime mortgages. These ratings are not only complex, meaningless, and often useless, they have been turned into ridicule in the last twenty months.
Let's shut down the rating agencies...now.
So let's not be afraid to "rate the ratings". I'm giving them the JUNK BOND status :)
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