America is a C Student
Maybe we should start calling ourselves the U.S. of C? Apparently, that is a far more fair and balanced judgment of America’s credit rating than the you’re still AAA, but not really issued by Moody’s last month. In a pretty damn sad acknowledgment of reality on the ground, Weiss Ratings of Jupiter, Florida recently gave U.S. debt a C rating.
For those unfamiliar with the small outfit, this is roughly the equivalent of a BBB from Moody’s, Standard & Poor’s or Fitch. In the report, which profiled 47 countries America’s debt rating took up 33rd place.
I will let you sit back and marinate over the meaning of that figure while I point out that it puts us right in line with such economic powerhouses as Mexico, Estonia and Colombia. Included in the average student category are Brazil, Japan and Canada. Certainly more established and formidable than the former, but certainly countries we wouldn’t have been caught dead with in the same category as recently as a decade ago.
In the words of Martin Weiss, the firm’s president:
The AAA/Aaa assigned to U.S. sovereign debt by Standard & Poor’s, Moody’s and Fitch is unfair to investors and savers, who are under-compensated for the risks they are taking. An honest rating is also urgently needed to help support the political compromises and collective sacrifices the U.S. must make in order to restore its finances.
My question to you guys is does debt really even matter any more? Not simply as a sovereign issue, but in a larger scope, as well. How are we to expect anyone from individual mortgage holders to credit card debtors to pay down their debt, when those holding all of the real purse strings refuse to do so? What exactly is the incentive for qualified investors to loan to the government, after all? What is my motivation to buy Treasuries if I am a bond market player of the highest order?
Just some food for thought, as this particular dish is so old and cold it can be served as the most Macchiavelian vengeance on us all. In the meanwhile, to completely formulate the Weiss perspective of sovereign debt, here are some other notable players in the arena:
Countries Receiving A Ratings
China and Taiwan
Countries Receiving A- Ratings
Switzerland, South Korea, Malaysia and Saudi Arabia
Countries Receiving D+ Ratings
Venezuela
Countries Receiving E Ratings
Portugal, Pakistan and Spain
I guess I better start using Chinese Treasuries for my risk-free rate
Hidden in your joke is one of the greatest "arbitrages" out there today. If you have access to it, you can lend in Yuan and borrow US dollars. You get the interest rate spread AND the currency appreciation.
This "arbitrage" exists because you are essentially "fighting the Fed", only it's the Chinese fed; because they're buying dollars to fix their currency. It's not as dangerous as fighting the fed because they are not trying to make you lose, just cap your return (i.e. controlled appreciation for the yuan).
There are many workarounds around the fact that it's hard to open a yuan denominated bank account; you can buy Chinese equities, among others (this is the simplest, not going to get into the more sophisticated ones).
Btw, arbitrage is in quotes because this is not a true arbitrage. I hate it when people say something is an arbitrage when it really isn't (that is, when they don't clarify that it isn't).
I'm assuming to lend Yuan you would have to exchange the currency. I'm not aware of any interest rate swaps available to the retail investor and I'm not sure if there are any Chinese fixed income ETFs or Bond funds that would produce the same return. If you did exchange the currency, do you think it's prudent to buy the Yuan at this time? While I agree we have inflation concerns, don't you think China will experience huge inflation as they move towards letting their currency trade more freely?
What countries can you lend the Yuan in? As far as I know the U.S. doesn't have Yuan denominated accounts for the average investor. Do you know if India has something like that? I have an account with HSBC denominated in Rupees and I wouldn't mind buying some kind of CD or equivalent denominated in Yuan. I don't see a point necessarily because Indian Fixed Deposit (CD eqiuv.) rates are 8.5% p.a.
The fact that the only comment to this is a joke rings significance-- the whole issue is taken as a complete joke. From ratings agencies to US fiscal discipline, there is a boisterous laughter all around us. Something about the US's (lack of) fiscal discipline that does not play into the 3 agencies' models. Let me think... when did something similar last happen... oh shit.
Although I too would like to see America take its debt more seriously, I see the credit agencies as a total joke. Lots of people knew that housing was a bubble [including 'glorious leader'], and they were too stupid and corrupt to do their jobs. How anyone takes them seriously at this point is a mystery to me.....
D's get degrees bro.
"and she done gone to school and got all type a degrees but I bet you that she never had them D's"
Ut excepturi cupiditate velit aut dolorem aliquam accusantium sequi. Nihil quia culpa eum ut. Culpa laborum ipsam et officia tempora. Iure enim et minima alias.
Consequuntur ut ea dolor ipsa et labore nulla minus. Eos qui dolore vel autem praesentium alias. Cum porro in aut dignissimos. Alias a necessitatibus provident repudiandae incidunt. Aut maiores qui sint consectetur. Voluptatem omnis natus totam voluptatum consequuntur iure.
Eos totam ratione et est magnam odit corporis. Vel autem libero numquam est qui rem. Repellendus reiciendis laboriosam debitis eius quisquam eaque dolorem. Consectetur ut culpa voluptatem deleniti eveniet dolor. Quo dicta et blanditiis ipsam assumenda aliquam odio.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...