Comments on: The politics of rating the USA A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Gabriel Mon, 25 May 2009 17:21:49 +0000 CB,

You are confusing two separate things. National scales, which is what international rating agencies use within certain countries are not the same as the international scale you have in mind.

Another common error is to think that countries don’t default on their own currency. In fact, they do. A lot.


By: CB Mon, 25 May 2009 03:44:00 +0000 the rating agencies have a totally inconsistent framework for sovereign ratings.
On one side, they set up some locally based joint ventures, which rate the local currency denominated govt automatically as Aaa, which I can understand as it can print money to service those debt.
However, separately from the headquarters of Moody’s/S&P, they give totally different ratings to countries on Local currency vs Foreign currency.
Case in point:
Mexico has Baa1 from Moodys’ on both local and foreign debt, despite having its own currency.
Japan gets Aaa from foreign debt while it’s Aa2 from Moody’s.

In my view, US can print money. its USD debt rating should be Aaa. its foreign debt should be rated lower.

By: Gabriel Mon, 25 May 2009 00:46:42 +0000 Felix,

Where on earth did you get that a rating of the US would involve McGraw-Hill’s CEO and board? There are internal rules for rating committees and records are kept, incase the SEC or someone else asks for them, and there is no room for a board member to vote on such a matter.

By: Matthewq Sat, 23 May 2009 10:05:40 +0000 I think their view is nonsensical. The rating should be about the likelihood of default. I might screw my nose up at the spending patterns of Elton John, but I don’t think he’ll fail to pay his credit car bills. This just seems like anti-Americanism to me, the Treasury is not going to default and the idea that it’ll default before Norway is surely bonkers.

By: Don the libertarian Democrat Fri, 22 May 2009 17:53:51 +0000 “In the absence of robust statistical testing, sovereign creditworthiness remains a
relatively subjective concept The limited predictability of economic behavior in general
and of political developments in particular leaves the task of credit ratings assessment poorly
suited to formulaic straight)ackets. As a result, S&P, Moody’s, and Fitch have over time
developed decision-making methodologies that blend objective, numerical analysis with
subjective, informed debate.” inance/SovereignCredit.pdf

I found the paper that I read when I wanted to find out how countries are rated for risk. It is way too subjective for my taste to be left in the hands of credit ratings agencies. Having said that, they do seem to matter.

Here’s a quote from another post I’d bookmarked:

“So what’s an investor to do? “I think that ratings should be used as one of several sources by investors,” says Nangle. “Having a rating agency worried about how far they are from consensus is not useful. Credit ratings would be most useful if they were accurate predictors of the probability of default and were a long way from market consensus.”

Adds Sammut: “In theory, it should ultimately be up to the investor (to decide) whether the ratings are accurate.”