Wednesday, February 25, 2009

Ukraine rating cut to lowest in Europe by S&P; Latvia at junk status

In the past two days Standard & Poor's has cut the sovereign debt ratings on both the Ukraine and Latvia. The latter is now at junk bond levels. So, did interest rates spike?

Not at all.

In fact, rates in both countries are lower than where they were back at the peak of the boom in 2006.

This once again highlights how clueless the ratings agencies are when it comes to the sovereign debt of currency issuing nations. There can never be a payments crisis in countries that spend in their own currency and where this spending is done by the mere crediting of bank accounts.

Is there a foreign exchange risk? Yes, but that is always the case--even in countries that are "fiscally responsible," like Switzerland.

If this doesn't prove that the interest rate is set by the central bank (the gov't) then I don't know what will. It should also be a lesson to all those debt doomsday folks who are waiting for the day when the clueless rating agencies downgrade the U.S. credit rating. That day is coming and when it does it will be trumpeted around the world. The sheep investors will short Treasuries by the droves--and we will be buying them--then taking our profits to retire on our yachts!


googleheim said...

Can you please give a couple of examples treasuries that we should "look out" for ?

googleheim said...

it's all relative right ? if we are downgraded, then we have a new Yen or other currency on top of ours for a little while. No big deal