Blind Eye Towards Junk Status?
By Simon Kennedy
LONDON (MarketWatch) -- The European Central Bank said in a statement Thursday that its decision to suspend the minimum credit-rating threshold on Portuguese government debt used for collateral was based on a positive assessment of Portugal's financial adjustment program and on the government's strong commitment to its austerity measures. The ECB said the suspension will be maintained until further notice and that it applies to all outstanding and new marketable debt instruments issued or guaranteed by the Portuguese government.
DPH: Looks like junk status no longer matters at the ECB.
I think the MOPE will soon become how junk status is overblown. The Govt.'s will blame the big credit rating agencies as undependable or whatever, or they'll litigate it down to a time consuming, inconsequential matter because the accounting rules will be changing at that point anyway.
When junk status happens to the U.S., and if the entire global banking system or economy is in the same boat at the same time, I think wide spread debt forgiveness between countries might happen. The trickle down consequences to the corporations and the people will be of no concern to them at that point, just the sovereign debt forgiveness or agreements that will have to take place at that point. Just like the haircuts and debt extensions the bondholders and central banks are doing now will happen on a much greater scale with a wink and a nod between most countries.
I can easily see where everyone gives just about everyone else the same type of break they themselves need. If China tanks or stagnates from inflation, then the global economy is not going to chug along like everyone hopes. China will accommodate almost anything at that point so that they to won't have to pay the piper. I'm not so sure I really believe that they have that much foreign currency reserves and cash as they state.
If China is as crooked as we believe them to be when it comes to accurately accounting for their domestic economic numbers, then how can we really be sure what they actually have control of monetarily? Also, if most of the worlds currencies are plagued by debt problems, then how valuable is that "paper" currency really worth when it comes to putting a value on it? How much does China really have in it's actual possession (as far as foreign currency reserve surpluses go) that is actually worth the paper it is written on or the digital numbers that represent that worth?
The same way that most U.S. citizens looked at Bernie Madoff and made the same connection during that point in the financial crisis between our Govt. and him as being in the same type of scheme, so to will most countries at some point look at each other and just lose that long standing confidence in the system that pretty much purred along for so many decades. It's all coming into question or soon will be. The confidence has been shaken in the people and their countries about the false stability that has surrounded us for a very long time.
Eventually the rules are going to be changed to accommodate everyone's dire debt situation or their relative inflation problem so that the game can continue on. I never see it ending, just morphing into the next phase of whatever needs to be done. I guess that's what history and evolution is, morphing into something else that is necessary, and evolution will happen because survival at any cost is ingrained into us, whether it's in nature or in the corrupt global banking system.
The bankers are OCD about their survival at the cost of everyone else except them, that's in their DNA.
(frustrated rant> OFF)
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