Ratings Agencies Picking on the Greeks
Joel Bowman, reporting from the Hong Kong airport lounge...
Not much time for reckoning today, dear reader. Bill is traversing the globe somewhere and I'm about to board a plane. Still...
Dollar in, risky Mediterranean debt out. At least, that's what the markets were indicating earlier today. Indexes from The Thames to The Nile and back again were in the red last we checked. The euro was down too.
That the Greeks are in trouble is hardly breaking news, of course... Heck, even those geniuses at the ratings agencies had time to figure it out! Fitch, one of the agencies NOT responsible for forecasting the biggest economic tsunami since (at least) the Great Depression, just downgraded Greece's sovereign rating from a single-A-minus to BBB+. So NOW investors run for the hills?
The only thing really surprising about all this brouhaha is that investors should find it at all surprising in the first place. Did they think Dubai was going to be a one off occurrence? That the same immutable laws of nature would not also apply to other overleveraged, undercapitalized economies? Not likely!
If the agencies are crying wolf, dear reader, your lamb dinner is likely already minced meat. Fitch worries that Greece's government debt burden may reach 130% of GDP before stabilizing and that it has a poor record of debt management.
Now why pick on the Greeks, we wonder? If imprudence and debt additions are the indictments, why not hall the United Kingdom in for questioning? And what about those hot-to-trot Baltic economies? And what about those American consumers? Household liabilities for the average American family now happen to weigh in at a familiar 130% of total disposable income.
It doesn't take a ratings agency to figure out that consuming more than one produces must eventually end in tears...either for the spender or the lender...or both! It's little wonder then that American banks are tightening their belts so much. Consumer lending fell 1.7% during October, representing the ninth consecutive monthly decline and a 4% drop since its July 2008 peak. Curiously, consumer economies don't tend to fare too well when consumers start (or are forced to) economize.
And it's not only the American Gap-goers who find themselves in a tight credit squeeze either.
Joel Bowman
for The Daily Reckoning Australia
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About the Author
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
Comment by nigel isherwood on 11 December 2009:
Dear Joel. I hold my head in my hands every time I read about the ratings agencies and their "efforts" to inform us. Never before have I experienced a more useless system of mis-information than the one operated by those agencies. AIG at AAA when it was clear to everyone they were bancrupt....he, he, he, nice one, very funny, no, really, thats enough, my sides are aching. Currently, I am wondering how long it will be before the agencies start to tell us the truth about the US and the UK governments credit status ( I would never lend them money). Inevitably they will say nothing for years, letting investors step into a huge sticky pile of doggy do, before announcing (far too late to matter) that the US and UK are unable to maintain interest payments on their debt. When interest rates start to climb....watch out. The mess on your shoes is nothing compared to what happens when it hits the fan. Bonzer, Nige