AL MARTIN via conspiracyplanet.com
The deteriorated credit ratings of sovereign debt, especially as we see it in Dubai, Greece and Ukraine, etc., has rankled global equity markets.
This has also driven money into the US Dollar and is primarily responsible for the recent rally we've seen in the Dollar.
Sovereign debt is the debt of foreign nations, Second and Third World governments, denominated in a currency other than its own, to wit US Dollars, Yen, Pounds or Euros.
This sovereign debt has been sold and is payable in a currency other than that of the issuing country.
Usually the largest amount of sovereign debt outstanding is denominated in US Dollars and Japanese Yen.
So what does the credit rating downgrade of the government debt of Greece and Dubai debt really mean?
This is a problem which everyone knows about, but which has been, until recently, successfully hidden by what I call the Wanton Bullish Shills in the media.
Credit ratings agencies, like Standard & Poors, Moody's and Fitch's, are being disingenuous at best regarding their rating system.
They are independent for-profit corporations, yet they masquerade as allegedly objective credit ratings agencies in a monopolistic role deciding what is "credit-worthy” or not.
The problem with the credit rating agencies is the inherent conflict of interests and since there are only three of them, universally recognized by the central banks, the IMF, BIS, etc., they can get away with it.
The credibility of the credit rating agencies has obviously been hurt because they dragged their feet in downgrading Credit Default Swaps (CDS) and Collateralised Debt Obligations (CDOs) in 2007-2008.
The credit quality of that debt was obviously deteriorating, and it also pointed out the flaws in the credit rating agencies, namely that they are paid by the very same issuers of the debt they are rating.
The principal problem is that every effort that the Democrats have made to make the ratings agencies truly independent by either making them some sort of quasi-government entity, or by creating a so-called payment pool, or even a securities transaction tax that would be paid by the industry into a common pot that would then be managed by either the FDIC or SIPC, which in turn would pay the credit rating agency.
That would remove the direct connection between the issuers of securities and the credit rating agencies who are rating them. Every effort to make them more independent has been stifled by the Republicans.
And what about the weakness in the credit ratings of the sovereign debt of Greece and Ukraine? The agencies had been warning for the last half of 2009 that problems were coming in the Greek, Hungarian, Latvian, Ukrainian, etc. economies. They had acted to downgrade the sovereign debt of these nation-states.
In fact now Moodys, Standard and Poors and Fitch's have a total of 37 nation-states on their downgrade list. These are not Third World nation states, whose credit quality is perennially "junk" status anyway. What has become more troublesome is the sharp deterioration in the credit quality of so-called Second World nation state issuers as well. This would include Spain, Iceland, Greece Hungary etc.
At the same time, the credit rating agencies have also been warning First World nation-states like the United States and Britain that they can also lose their AAA credit ratings if they do not rein in their budget deficits.
Japan has also received similar warnings since the Japanese are now running a debt to GDP ratio of about 130%.