Ah, now there’s a distinction worth making.
Moody’s, one of the big three debt rating companies, is continuing to rate the sovereign debt of deeply indebted countries such as the United Kingdom and the United States Aaa. That’s the same top credit rating Moody’s gives to countries such as Canada and Germany where debt loads are at lower levels and budgets are closer to balanced.
But, Moody’s is calling the former group “resilient” and the latter “resistant.”
No country in either group, Moody’s says, is “vulnerable.
The debt load for the United States will climb to 97.5% of GDP in 2010 from 87.4% this year, according to the Organization for Economic Development. For the United Kingdom the debt load is projected to climb to 89.3% from 75.3% in 2009.
“Resistant” countries, a category that also includes New Zealand and Switzerland, won’t see their debt rise to levels that threaten their Aaa status.
“Resilient” countries are Aaa countries where public finances are deteriorating, but which display, in Moody’s opinion, “an adequate reaction capacity to rise to the challenge and rebound.”
Not everyone buys this distinction.
The credit default swaps market, where traders can buy insurance against default, has a different opinion. The cost of protecting against default by the United Kingdom, a resilient country, is equal to that cost of insuring against default by Portugal. Moody’s rates Portugal Aa2. That’s two steps below Moody’s Aaa rating for the United Kingdom.
TheMiz,
You sure socialist countries have (had) a strong track record in innovation? Perhaps you can enlighten us?
As for Moody’s, not to speak for Jim, but the article seems to read that he doesn’t put a lot of credence in their opinions. That said, it makes sense to get information from as many sources as possible. For me, I’m in the camp that the RA’s opinions are worthless.
Time to re-read the chapter titled “Stability Premium” in Jim’s book. If the rating agencies cannot be trusted, why should the foreigners invest in the U.S. of A.? Another reason to say goodbye to the Stability Premium…
the miz,
Thank you. You beat me to it!
Jim, regarding your numbers: “The debt load for the United States will climb to 97.5% of GDP in 2010 from 87.4% this year, according to the Organization for Economic Development.”
That clearly doesn’t include Social Security and Medicare, where the debt totals are easily over $50 trillion, whereas our GDP is in the neighborhood of $14 trillion.
Would you completely overlook a company’s long term debt in your evaluation of it?
“Resilient” sounds like a euphemism for “able to print lots of money”.
This phobia on socialism is a killer. Look what we got into with the last Admin. on true free markets. No regulation to be seen. There is a balance and we haven’t had it. Health care eats away every day via bankruptcies and people riding under a crate of debt over health care.
amtrend10, the SOCIALISM rant is over rated, propelled by small minds. The U.S. is the only Western Nation that doesn’t offer health care to its citizens. Please read the definition of socialism before labelling every government action to help people and strengthen the country as such, unless you actually mean it as a complement. Many of the so called socialist Western countries have a stonger economic base and higher real debt rating, because they have gotten beyond greed to common sense. Education, innovation and a healthy a citizen base builds economic success in a democracy.
Let’s assume you commentors are correct. Does that mean the US and GB are not resilient economies? I agree with them in that the US has a resilient economy and I agree that that is because We are still a democratic nation. However this last main core election has planted some seeds of doubt about that. Socialism will kill all that we are.
I certainly understand and acknowledge the sentiment re: ratings agencies. Their reputation as objective arbiters of risk has been severely tarnished. But they themselves are now clearly at risk of losing customers/revenue if they do not restore faith and confidence. I suggest they may, if anything, be biased toward more conservative risk assessments.
Riiiight. I believe NOTHING Moody’s says anymore. It’s all happy talk.
I have to second what Hankztur said. Moody’s currently has Japan a AAA rating despite a debt load that boggles the mind. Personally I think some of these credit ratings are border line criminally negligent.
If only my bank knew how “resilient” I am, they’d be happy to lend me money.
Hankztur has it right. Moody’s gave triple A ratings to the mortgage backed derivatives that were used by Wall Street to build the house of cards whose collapse caused the current crisis. They ignored the fact that the insurance companies insuring the derivatives didn’t have enough backing to cover them if they defaulted. Inconveniently, the ratings agencies are paid directly by the companies whose instruments they are rating. Some might say this is a conflict of interest. As Jim is pointing out, apparently the credit default swap people recognize this and don’t want to be burned a second time. Even Warren Buffet, when questioned on CNBC several months ago, admitted that he was considering divesting himself of his interest in Moody’s. With this history, what’s a Moody’s rating worth these days?
Moody’s is one of the companies that gave top ratings to the securities that got us into this mess. Why believe anything they say.