America pratice what you preach! With your +1,780 billion dollar federal deficit you have no need to lecture Europe our our meager deficit. Germany has for example only 2,2 billion dollars.
The reason all of us are in the hole is that politicians want to get relected and continue to buy vote from business and voters in general through social services. And of course military spending is out of control dont you think?
but you can have an opinion about the USA?You dont even know where Europe is without a Navi, what makes you think you can have an opinion concerning european affairs?
You dont even know where Europe is without a Navi, what makes you think you can have an opinion concerning european affairs?
The absolute numbers are not what matter. European countries nearly universally have high debt-to-GDP ratios than the US.
That and the deficit-to-GDP rations (which up until the current crisis the US would have qualified to get into the Eurozone on its deficit, something many European countries failed to do but were let in anyways). The US debt is pretty bad right now, but its Europe that's pushed it to the crisis point even before the recession.
American economist cant afford to say the king (federal government) is naked! Why? My guess is that they have so many of their own assests invested in american bonds & stocks and real-estate that they would be losers too, if speciulators would do a PIGS on Wall-Street? Am I close. I also dont trust your rating system, because companies like Moodys are not independent, they live from the companies that they rate. Am I close? I think I hit the mark.
I think the reason is less that stocks and bond values would go down, but interest rates on government debt would rise, increasing further our deficit problem. Right now foreignors are still buying up our debt at very cheap rates, we should thank them.
On the rating agencies. They are paid just like the firms that audit the financial results of all public companies. The system is not great, but not sure what a better answer is. What is the saying, don't let perfection be the enemy of the good. Rating agencies failed big time in the housing market, but in general have done an OK job in my view.
They Rating agencies should operate independently and have no finanical benifits from the companies and countries they rate.
if interest rates on government debt rises typically you would see the P/E ratio on stocks go down, leading to a decrease in the stock value. The reason of course is that generally corporations are more likely to go bankrupt then governments and people place a larger risk premium on stocks and corporate bonds
On the rating agencies. They are paid just like the firms that audit the financial results of all public companies. The system is not great, but not sure what a better answer is. What is the saying, don't let perfection be the enemy of the good. Rating agencies failed big time in the housing market, but in general have done an OK job in my view.
Actually, based on the empirical evidence, the question as to how much value the ratings agencies actually provide is highly pertinent. The debacle with asset-backed/mortgage-backed securities is, sadly, not the exception. For example, in their seminal study on banking crises and currency crises, Carmen Reinhart and Kenneth Rogoff found that the Institutional Investor and Moody's sovereign ratings did worst in providing early warning of banking crises and currency crashes. For the former crises, real exchange rates and real housing prices did best (that the U.S. financial crisis erupted in the wake of the bursting of the nation's housing bubble and what had been a sustained decline in the value of the U.S. dollar that began paring the rush of capital inflows that had been occurring during the run-up of the housing bubble is par for the course). The latter were best predicted by a combination of real exchange rate trends, banking crises, magnitude of current account deficits. When it came to sovereign debt crises, again the ratings agencies were typically far behind the curve, often caught by "surprise" i.e., ratings downgrades followed the onset of the Asian financial crisis and Greece's debt was downgraded to junk status only after Greece was in the throes of a debt crisis.
While you might say the ratings agencies are behind the curve, the ratings are an integral part of the financial system.. and some would claim too integral.
Markets react in panic when these agencies downgrade a country or company despite that the markets knowing nothing has actually changed. Spain is an almost classic example. Fitch downgraded Spain from AAA to AA+ a month or so ago and the markets went into a panic mode. When the news organisations started to interview the Fitch people, then suddenly the markets noticed that the downgrading also meant that Spain went from downward outlook too stable outlook.. something they had missed at the start. Then the markets recovered over the next day. And for the record AA+ is still one hell of a good rating as the Fitch rep. said. So if the ratings agencies are behind the curve, then the markets should have factored in a downgrade for the most part.. but they have clearly not since a downgrade can start of massive selling and panic. And the real problem with Fitch's downgrade and the markets is that S&P downgraded Spain a few weeks earlier so there is no excuse what so ever for the markets not to have factored in such a downgrade.
And in the case of Greece I would claim the ratings agencies along with the speculators and naked short selling pushed Greece over the edge. Greece did not even get time to sort out its house before the markets turned on Greece and drove it to the brink and the ratings agencies had a huge part in that since each time they downgraded Greece for whatever reason, they forced up the yield on Greek bonds, which in turn meant they had to downgrade Greece yet again. A snowball effect. And when you have 3 major agencies then you get snowball effect fast if the markets keep reacting in panic mode for each downgrading or warning and it all happens with in a few weeks or months and there is no freaking way any country or company can fix a problem in that short a time.
That is why I say dissolve all rating agencies and form a single independent agency to value large assets. The present system clearly does not work and is easily manipulated by the big players as we saw with Lehman Brothers and the sub prime crisis.
Dont see why. As it is there all corrupt. What we need is some none american raiting agencies from Europe and asia.
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