Anna Baraulina — Vladimir Putin Starts His Own Ratings Firm

Vladimir Putin’s homegrown credit-ratings firm is up and running and foreign competitors are already feeling the heat.

In the past three weeks, Moody’s Investors Service Inc. and Fitch Ratings Ltd. have said they plan to stop issuing local ratings rather than agree to having their Moscow branches regulated by the Russian government at the cost of breaking international sanctions. As the New York-based firms scale back, the venture known as ACRA is poised to fill the void when it starts publishing opinions in the second half.

Russia is squeezing the business of foreign-ratings assessors since downgrades it condemned as politically motivated last year pushed the sovereign below investment grade for the first time in more than a decade. The finance ministry and central bank plan to use ACRA to replace the so-called big three as their yardstick to measure credit quality of investments.…

Bloomberg Business
Vladimir Putin Starts His Own Ratings Firm
Anna Baraulina

Felipe Rezende — S&P threatened to downgrade Brazil to junk

Brazilian Left. buying into neoliberal analysis, crashes and burns. That would be you, Dilma.

New Economic Perspectives
S&P threatened to downgrade Brazil to junk

Felipe Rezende, Hobart and William Smith Colleges

William F. Engdahl — Russia and China: Watch Out Moody’s, Here We Come!

Over the past approximate quarter century of so-called economic globalization, Wall Street’s ability to be the home of the only dominant “global” rating agencies to bestow ratings on the credit-worthiness of the world has been one of the most effective weapons of financial warfare in the Wall Street arsenal. They rate nations as well as private corporations. Now an answer to the Moody’s-Standard & Poors-Fitch US rating monopoly is coming. Not from the EU, where it is long overdue. It is coming from Russia and China, as so many bold and challenging initiatives of late.…

Unlike the politically impotent EU, however, Russia today is not the Russia of the corrupt Yeltsin era of the late 1990’s. Vladimir Putin and China’s Xi have agreed to create their own international credit rating agency and it plans to open for business this year, 2015. 

The Universal Credit Rating Group (UCRG) plans to begin official independent ratigs in 2015 to challenge the Moody’s, S&P and Fitch ratings monopoly, according to RusRating Managing Director, Aleksandr Ovchinnikov. 

The new agency will be based in Hong Kong. Interestingly, there is a third equal partner to Russia and China in UCRG. In addition to China’s Dagon Credit Rating Agency, Russia’s RusRating the US-based independent Egan-Jones Ratings is partner in the new UCRG. Each member will hold an equal share in the venture, with an initial investment of $9 million. In effect, three already well-established national independent rating agencies form the new UCRG joint venture. It is a serious challenge to the New York Big Three monopoly. 

Egan-Jones Ratings Company, also known as EJR, founded in 1995 is a very interesting artner for Russia and China raters. It is unique among US nationally recognized statistical rating organizations (NRSROs) for being wholly investor-supported, not client-financed, eliminating the gross conflict of interest of the Big Three. On April 5, 2012, Egan-Jones was the first rater to downgrade the credit ranking of the United States. In addition Egan-Jones was also the first to downgrade WorldCom and Enron. 

The UCRG was officially created in June 2013 and has since been finalizing its business structure. Ovchinnikov added that, “When the issue of creating an agency alternative to the ‘Big Three’ was raised, we in fact offered a project that was ready to be launched and was supported by the governments of Russia and China.” He explicitly pointed to the bias of the US Big Three raters to be overly “generous” to US and EU clients while being biased against developing or emerging countries such as the BRICS—Brazil, Russia, India, China, South Africa. 

Now with an independent credit rating agency, a $100 billion BRICS Infrastructure Bank and strategic local currency agreements in place, Russia and China, Brics for Brics, are establishing the architecture to a genuine alternative to the destructive neo-colonial IMF and World Bank and the tyranny of the Wall Street dollar system. The year 2015 will indeed by interesting. Poor Mr. Soros might have to look for another job.

New Eastern Outlook
Russia and China: Watch Out Moody’s, Here We Come!
William F. Engdahl

See also, The Great Ratings Game: How Countries Become Creditworthy by David James Gill and Michael John Gill at Foreign Affairs (CFR).

Today's podcast

Today, Goldman Sachs, my eye opening stint at Standard & Poor's, China's economy surpasses U.S, parasitic financial sector.

Yves Smith — Vermont Citizens Push to Form a State Bank, But Will Ratings Agencies Kill the Idea?

The rating agencies as "enforcers" of neoliberalism, and about as subtle as a Mafia enforcer.

Naked Capitalism
Vermont Citizens Push to Form a State Bank, But Will Ratings Agencies Kill the Idea?
Yves Smith

Randy Wray — Banks Don’t Lend Reserves! Who Knew? MMT, That’s Who!

OK so it took almost four decades but finally the mainstream is waking up to the fact that banks do not “lend out” reserves (except to one another in the fed funds market). The whole “deposit multiplier” story that was taught in every American money and banking textbook is wrong. Always has been wrong.
(Just an aside: the mistake was largely an American deal. British students got to use Charles Goodhart’s text, which always got it right. But generations of Americans as well as foreigners who studied in America were misled by our textbooks.)

If our policymakers who art in Washington understood this, we would not have got QE. Or all the hyperinflation hyperventilating by those who fear that the trillions of dollars of excess reserves will get “lent out” and cause prices to go to the stratosphere.
Banks do not “use” reserves as the raw material for loan-making. Rather, they lend out their own deposits, which are created by keystrokes. Post Keynesians have been saying this since a seminal piece by Basil Moore was published in 1979 (and it is easy to find early precursors all the way back to the dawn of time–as I demonstrated in my 1990 book, Money and Credit in Capitalist Economies).

Economonitor — Great Leap Forward
Banks Don’t Lend Reserves! Who Knew? MMT, That’s Who!
L. Randall Wray | Professor of Economics, UMKC

Massive idiocy! Fitch downgrades Britain!!!

These moronic rating agencies never learn do they?

After S&P's laughable downgrade of the U.S. two years ago you would have though Fitch would have learned something, but, NO! They downgrade Britain.

Once again the rating agencies PROVE that they don't understand the distinction between a currency issuing nation like Britain and a currency using like Greece or, Italy or, Spain or, yes, even Germany!
Britain can never, ever, ever, ever, default on its debts because all its debts are denominated in Sterling!

Here's what Fitch stated as its rationale for the downgrade:

KEY RATING DRIVERS
The downgrade of the UK's sovereign ratings primarily reflects a weaker economic and fiscal outlook and hence the upward revision to Fitch's medium-term projections for UK budget deficits and government debt. Despite the loss of its 'AAA' status, the UK's extremely strong credit profile is reflected in its 'AA+' rating and the Stable Outlook.

- Fitch now forecasts that general government gross debt (GGGD) will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%.

- Fitch previously commented that failure to stabilise debt below 100% of GDP and place it on a firm downward path towards 90% of GDP over the medium term would likely trigger a rating downgrade. Despite the UK's strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a 'AAA' rating.

Check out the highlighted part. "gross debt to 100% of GDP." They must be using Reinhart and Rogoff, still, even though those two have just been shown to be charlatans!!! LOL!!! Unreal!!!

Fitch...YOU SUCK!!!!

A break of the 1491 level on the S&P 500 would indicate that a market correction is starting

Matt Franko and I have been detailing the last two months' net spending by the Treasury while under the debt ceiling constraint and the numbers haven't been good. A total of only $9 bln of $NFA's have been created where the normal "need" to ensure system stability is around $90 bln.

Sharp reductions in $NFA creation in the past have led to "liquidation events" like we saw in July-August 2011. I believe another one could occur soon. A technician friend of mine told me to watch the 1491 level on the S&P 500 Index. A break below that would be the first sign that the market is turning on its heels.

Time to shut the rating agencies down!

The rating agencies are clueless and have already done enough damage. Time to shut them down!

Last summer I said a U.S. credit downgrade would NOT result in higher rates!

I did this interview prior to the S&P downgrade of the U.S. last summer and I said that a downgrade WOULD NOT RESULT IN HIGHER U.S. INTEREST RATES!

French downgrade by S&P imminent and ECB is selling bonds!

The word is that S&P will downgrade France and a number of other European countries. Market reaction has been ho-hum. French bond yields have hardly moved. Looks like people think this will play out the same way it did when S&P downgraded the US. Treasury yields fell sharply after that.

But is a downgrade of France (and other Euro nations) the same as a downgrade of the US?

Absolutely not. European countris are credit sensitive by virtue of the fact that they are not currency issuers. They do need external funding.

And here's the kicker...what has the ECB been doing in the last two weeks? Selling bonds! They've sold 50 billion euros worth of bonds in that time, reducing the size of their balance sheet.

Looks to me like investors don't know this is happening. Also looks like we're in for another round of funding crisis fears.

Treasury auction 7-times oversubscribed, interest rate, ZERO!

Treasury just auctioned off $30 billion of bills at a rate of ZERO and it was nearly 7 times oversubscribed!!!!!!!!!

Yet they keep telling us that the deficit and debt will cause rates to spike!!

When will they wake up??

S&P, PLEASE DOWNGRADE THE US CREDIT RATING AGAIN SO THAT 10-YEAR YIELDS CAN GO TO 1%! PLEASE!!!!!!!!!!!!

We WON!!! MMT got everything right...EVERYTHING!!!

Modern Monetary Theory (MMT) scored a knockout this year, correctly predicting all the major economic events and their outcomes.

From the downgrade of the US credit rating and the resulting interest rate decline, to the lack of hyperinflation from QE, to the increase in deficits in Eurozone countries imposing austerity, MMT had it all right...EVERYTHING.

The other guys have egg all over their face and continue to look like ignorant fools.

Where are all the "geniuses?"

Where are all the "geniuses" who told us that the dollar was going to tank, that US interest rates would spike higher, that the US economy would be the worst perfomer, that gold would be the best investment? Where are they? Every single one of these imbeciles got all these things WRONG! A universe of ignorance so vast that if Einstein were alive today he'd have to invent an entire new school of physics to describe it.

Fed "prints" $29 trillion. Dollar goes up!!

Peter Schiff, where are you?

Jimmy Rogers, are you awake?

Marc Faber, hello??

Laurence Kotlikoff, Ken Rogoff, Standard & Poor's, where have you all gone???

Ron Paul????

Rick Santelli?????

So we now find out, thanks to researchers at the UMKC, that the Fed "printed" over $29 trillion in the past three years (see prior post) and the dollar went...up???

Don't believe me? Have a look see:

So where have all these dollar bears gone? Why isn't anybody calling them out??

Their bogus dogma about "money printing" and "currency debasement" is about as flat as all the flat world theorist claims 500 years ago.

Time to wake up and relegate these clowns to the dustbin of failed economic theories. Time for everyone to get on board with MMT.

Oh yeah, I forgot to mention...Treasuries surged over that course of time!

Market looks like it's getting it wrong again on S&P move

So, the market is omniscient? The market never lies? The market is an efficient allocator of capital?

Hmmm...let's see.

When S&P downgraded the US there was a huge, negative reaction in the market. That was irrational because there is no risk of default for the US, a sovereign currency issuer. If you sold on the US downgrade, you're currently underwater.

Now S&P puts the Eurozone nations on Credit Watch Negative (meaning actual downgrades are likely) and the market rallies?? This time the downgrades actually mean something because none of the Eurozone countries are currency issuers and, therefore, they're all are credit sensitive.

Bottom line: the market is not always omniscient, honest and efficient as the neo-liberal economists would have you believe. It can be affected by bad beliefs just like anything else. (Remember the belief that Quantitative Easing was hyperinflationary?)

Most likely, selling into this optimism will prove to be as correct as buying into last August's pessimism.

"Rates will not spike higher on a downgrade of US" - Mike Norman, 4/6/11

Revisiting this interview on RT America, where I explained why there is no solvency issue for the US and why rates will not spike higher if their is a downgrade.

S&P puts its stupidity on display once again

Over the past few years we've seen numerous examples of S&P stupidity, from the toxic assets rated AAA (although that might have just plain, fraud not stupidity) to the downgrade of the US credit rating even though there is ZERO risk of a US default because it's a currency issuer, to this...a statement by S&P on Europe's EFSF fund:

""In our opinion, there is an "almost certain" likelihood that the EFSF's 'AAA' rated member governments would provide timely and sufficient extraordinary support to the EFSF if needed."

And who might that support come from? France? Germany? Those nations are all credit sensitive themselves and are, therefore, constrained due to the fact that none of them are currency issuers.

By establishing the EFSF as the mechanism by which the situation gets "resolved" and precluding ECB support, they have all gone into "Ponzi," a fact you'd think S&P would recognize. But then again, S&P doesn't think it just issues proclamations based on ignorance.

The full arrogance of the ratings agencies on display

Just watched some guy from S&P being interviewed on CNBC. Steve Liesman asked him if he thought that the probability of a default by the U.S. had just increased. The guy said, "yes." Then Liesman asked him to explain how the U.S. can default when it issues its own currency and when its debts are denominated in its own currency. The guy basically couldn't answer. He pretty much said it didn't matter and spoke about a "rich history" detailing the problems of countries with high debt, failing to make any distinction between what nations in that rich history were under gold standards or fixed exchange regimes (all). Then he just said "we do not accept the idea that a country with its own currency, treasury and central bank is immune to debt problems."

Now that's arrogance for you. Since S&P simply cannot accept the idea, they will rate on the basis of their misguided belief and bias. Ordinarily that would simply be a reason to laugh at them and see them for what they are: a bunch of arrogant and elite functionaires. Sadly, though, policy makers, investors and others listen to these idiots and their ratings and pronouncements, which means this will have a real impact on people.

I worked at S&P back in 2000 and was basically fired after getting into an argument with chief auto analyst Scott Sprinzen after I wrote a highly negative article about General Motors, whose stock was trading at 80 per share at the time. I questioned GMs outlook and the rosy assumptions that they were making for their finance unit. Sprinzen took exception to this saying that GM was strong and would not have any problems. Well, I was forced to resign.

Fast forward: GM went bankrupt and had to be saved by taxpayers. Sprinzen is still there at S&P. I am not.

These agencies have been conducting business for years despite the fact that they operate with huge conflicts of interest. They are paid by the entities they rate so there is massive incentive to make things look rosy when they are not. They are protected by the government and have no competition. This has made them arrogant to an extreme, as exhibited by the jerk being interviewed on CNBC. Sadly, nothing will be done to reign them in or make them more accountable for their ratings.