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Moodys Ratings Agency Downgrades Irish Debt to Junk Status

Reduction in Ireland’s credit rating could be sign of much worse to come

Moodys ratings agency downgraded Irish sovereign  debt to junk.  Can it be long before the other miserably-named agencies, Fitch and Standard & Poors, follow suit?

Obviously, the so-called bailouts haven’t fooled anyone.  The bank bailout was a sham, and so was the EU / IMF bailout which was in reality just a loan at high interest rates. Lenihan’s insane gamble has failed, and now we face the consequences.  Ireland is broke.  We’re out of money and nobody will lend us a single penny after this downgrade.  Irish sovereign bonds no longer have even minimal investment status.  Many investors are forbidden to hold junk bonds and will be forced to sell them off, making the situation worse.  The ECB can’t pretend forever that Irish bonds have value and sooner or later will have to stop lending to us as well.  The IMF has no obligations at all to Ireland and is free to pull whenever it sees fit to do so.

What does this mean?

Very soon now, the government will have no money at all.  Not a cent.  And it will have no access to borrowing because nobody will lend money to a state whose IOUs are considered junk.  There will probably be a run on the Irish banks as people rush to get their money out of a collapsing economy, making the credit squeeze even worse.

We could be looking at complete financial collapse in an uncomfortably short time, and yet our only plan at the moment is to fling our last remaining reserves of cash into the criminal enterprises that caused the catastrophe.

As Colm McCarthy has advised, fasten your seatbelt.

For once, I think he’s understating things.

33 replies on “Moodys Ratings Agency Downgrades Irish Debt to Junk Status”

The conspiracy theorist in me thinks this is part of a larger plan to keep us subservient while steaking our oil and gas reserves before we realise how valuable they are.

I love how the US with their 30 trillion debt (and another 30 to come apparently) who have said they will likely never be out of have not been downgraded one point all the while. Correct me if I’m wrong, I’m no economist; but unlike Bertie, I do have a bank account.

sakimotosan,

The reason the US hasn’t been downgraded and won’t default is that they can print their own currency. No guarantee about what it will buy you, mind, but their only promise is that they will deliver you some greenbacks. Normally printing like mad would destroy the value of the dollar (and it has to some degree) and other folks would stop accepting it and demand payment in Euros, Yuan or Gold. However, the dollar’s position as THE international reserve currency has prevented that.

When we entered the Euro, we gave up the right to print or devalue our way out of trouble and back to competitiveness.

Spikes…the reason US is not downgraded is because it really is a wealthty country with only a cash problem.Wealth is not just cash alone it is the entire package.Indigenous industries,Scientific ability.infrastucture,lack of corruption and general honesty etc (all the ingredients for creating monetary wealth are there).Any nation that has those is a secure bet.Ireland on the other hand only always saw wealth as cash in the hand and never really developed any solid permanent wealth foundation.So now the cash has gone and ireland has fuck all else…the nation is as they say…JUNK!.

William, no question that the US has wealth, or rather assets (land, minerals, multinational IP-based industries like software, pharma, entertainment, tech products etc.). But it hasn’t been downgraded despite its huge ongoing deficits because there is no chance that they will default. (BTW, The idea that they lack corruption or are “generally honest” more than any other developed nation is a huge stretch. It’s not Russia or Zimbabwe, but Irish-style corruption is well known here, and their politicians are equally inept).

Also no question that if our borrowings had been channeled into something productive other than bailing out housing (a non-productive asset) that we could support more debt than we can today. But if you spend more than you earn (as the US does), then you add debt faster than assets/wealth and eventually you go bust – IF you borrow in a currency you can’t print (eg: Euro or gold standard). Doesn’t matter how much wealth/assets you have. With enough debt against it, you’re bust.

On the other hand, if you can just print the money as the US can, you don’t go bust – you just devalue the debts via inflation. So there’s no default risk. You can do that until someone decides that they don’t want your worthless paper any more – eg: Russia, Weimar Germany, Zimbabwe.

The British empire was wealthy too – loads of assets, intellectual property, great science and research and more than a few honest folk wandering about too. Still went through a massive financial crisis from which it never recovered post WW1, because it had to finance living beyond its means on the Gold standard (ie: couldn’t just print its way out).
The Roman empire, noted for a bit of wealth, over-extended itself financially trying to stave off competitors on multiple fronts who had closed the technology gap (Huns, Goths, Sassanids). Only so much gold to go around. Didn’t work out too well.
Tsarist Russia had huge wealth, and was actually in the middle of reform and developing indigenous industries during WW1, but again, the gold standard meant that as they funded war bills externally with gold, they printed money internally to pay local business, inflation went nuts, the economy collapsed and next thing you know it’s Comrades all around.

Hasn’t happened to the US because they have the world’s reserve currency, so they can just keep printing it to pay the debts until someone else says “hell no”. It hasn’t gotten that far out of hand there – yet.

Apologies for the over-long post.

Spikes..just to clarify what I meant about corruption, you are correct of course that it exists in the US (although I am not sure that its anywhere near as common as in Ireland).However its the US state response to it thats totally different and will engender confidence in lenders.As everybody has seen the corrupt in the US when found out can find themselves in a cell for the rest of their lives.While in Ireland they get a bonus and a pension.Lets just say the latter does not create a positive image in the minds of foreign lenders and investors.Combine that with everything else and you can see why the word JUNK keeps coming up.

William, Bock is right. US bankers & homebuilders didn’t get jailed, they got bailed (out).

The world over, governments put the interests of bankers and developers ahead of those of their taxpayers. This is partly because of (IMHO) a misunderstanding of the lessons of the depression by the same economists who denied the existence of a bubble in the first place, partly because of well-spent banker lobbying dollars. To name just one US example Citibank was insolvent, but we went around pretending that the emperor had clothes. Savers and taxpayers were then looted by the US government to bail them and other banks out. The US government gave huge retroactive tax breaks to homebuilding companies. Nobody was held responsible, nobody of any significance went to jail, and my guess is that nobody will.

When there’s too much debt against too little real asset value, the excess debt gets either defaulted on or inflated away. We’re going down the first path, the US down the second. The difference is that inflation is not regarded as default by the rating agencies.

William, I’m probably trying the patience of Bock and others, so I’ll leave it at this:

There may have been some very junior sacrificial lambs, but I’m unaware of any US banker of any significance who has gone to jail for their role in the mortgage crisis. Some articles backing that up from well respected commentators, giving a few details (note: Angelo Mozillo was a key player in the crisis – a sort of US Seanie Fitz, if you will):

http://www.nakedcapitalism.com/2011/02/another-reminder-that-crime-pays-no-charges-filed-against-countrywides-mozillo.html
http://www.dailyfinance.com/2011/02/23/countrywide-mozilo-fraud-no-prison-trial-sec-mortgage-meltdown-deal-crisis/

Jesus Bock I dont have time to find them all!….Anyhow as you can see it does happen there…it dont happen here

A senior vice president here http:www.skynews.com.au/world/article.aspx?id=626989&v1d= sorry cant get that link to go through

So according to Moody’s it wasn’t ‘junk’ and now it is ‘junk’ and that makes things worse.. hmmm.
And yet according to the Irish Times Moody says Ireland has “to date, delivered on its programme objectives”. These rating agencies don’t seem very impartial.

http://www.irishtimes.com/newspaper/breaking/2011/0712/breaking54.html

“Although Moody’s acknowledges that Ireland has shown a strong commitment to fiscal consolidation and has, to date, delivered on its programme objectives, the rating agency nevertheless notes that implementation risks remain significant, particularly in light of the continued weakness in the Irish economy,” it said.

“The negative outlook on the ratings of the Government of Ireland reflects these significant implementation risks to the country’s deficit reduction plan as well as the shift in tone among EU governments towards the conditions under which support to distressed euro area sovereigns will be made available,” it added.

“Weakness in the Irish economy”. We’re in a global recession for fuck’s sake.

Moodys is one of the three ratings agencies based in New York, whose employees are laughed at by the masters of the universe because they can’t get “real jobs”. This is the first salvo in an attack on the Euro directed by US five-star General Goldman Sachs. We’re looking at WW IV folks, whether people realise it or not.

Interesting article here on proposals to deal with the rating agencys.
Interesting piece on a eurobond too.
http://www.iiea.com/blogosphere/blend-or-distill-the-european-sovereign-debt-market

And today’s article:
http://www.iiea.com/blogosphere/junking-the-rating-agencies

“Commission President Barroso called the decision to downgrade Ireland “incomprehensible”. Der Speigel reports European Justice Commissioner Viviane Reding as saying that “Europe can’t allow three private US enterprises to destroy the euro”. German Finance Minister Wolfgang Schäuble asks whether “the oligopoly of the rating agencies can be broken up”.

I’m getting very tired of people with depressing names trying to destroy Europe. They sound like characters out of a bad panto.

Fitch. Standard & Poors. Moodys.

Who’s going to downgrade us next — Bill Sykes?

They could not do as much to destroy Europe as the axis of greed corruption and immaturity Ireland,Greece and Portugal.Is not attacking Moodys, fitch and Standards & Poors just a case of shooting the messengers.As for Commission President Barroso well like the Irish goverment he has a vested interest in looking at the disaster through rose tinted glasses.

We’re like a jet plane 35,000 feet above the clouds that is soon going to run out of fuel. Grab a parachute and have faith.

Just a note on senior bankers being sent to jail for stuff they shouldnt be doing. You usually join the bank as a “junior associate”, then get promoted to “associate”, then “vice president”, then “Senior vice president”, its all a bit of a joke, like being called a “Potato Technician”, it doesnt mean you are the president of anything, or senior at anything, and in no way if someone is a “senior vice president” should you infer that they are high up in the bank, its a crap title usually indicating that you got your foot in the door of the bank 20 years previously.

Well, well. S&P downgrades the USA. Never thought I’d see the day. Still should be no chance the US defaults (unlike Ireland, they can just print the currency to repay their debts) but well done to Standard and Poors for finally pointing out that the emperor might be a tad under-dressed. This could get very interesting.

Every major currency bloc is looking to devalue competitively. I can understand why people are piling into gold. The real rate of interest (nominal rate less inflation) is negative in almost every currency, and that generally bodes well for gold since it’s regarded as a store of value. Of course, in case anyone needs to be told, or cares, that does not constitute investment advice.

“Professor Evans said what he and his colleagues found “was astounding”.

The countries can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58%
[….]
Ireland can reduce its debt from almost 130% of GDP to under 20% of GDP
[…] ”

Take a look here http://www.golemxiv.co.uk/2011/05/how-to-destroy-the-web-of-debt/ . You will something interesting, even if the figures should be closely examined. There is a link to the project site where you can find a tiny program to use in case you want to update the figures.

“The bankers don’t want any discussion of mutual debt cross cancellation because it would force a necessary deleveraging. The bankers do not want deleveraging because leverage is the secret of how the bankers make their profits and without it they wouldn’t look nearly so smart. The reason debt cancellation would force deleveraging is because much of the debt which would be cancelled is currently being held on bank books as an ‘asset’ serving to underpin yet more loans and debt. So start cancelling debt and the bankers pyramid of leveraged debt begins to crumble. The fact that it has to crumble if we are to recover without being crippled with trying to pay unpayable debts never gets a mention in banker-world.”
==

Please, do so! Try to calculate / speculate on the amount will be available for Ireland’s development if this mutual debt cross cancellation is done. People will see what’s possible in the future if they fight in a way or another for this mutual debt cross cancellation. Choose one country, the one that would generate the biggest debt reduction, or the one where you have connection with people publishing on blogs, or choose the country where a group of citizens can easily take to court the employees of the finance minister ( just an example) for not proposing this mutual debt cancellation as an economic solution for the benefit of people. Organize a kind of cross campaign using bloggers networks of at least 2 countries. Consider the legislation in both countries, how a group of people could push the governments to act in this direction of mutual debt cross cancellation. Think and do it!!! It can be done!

Read that Golem article. He’s good.
It’s all a big steamy pile of shite it seems to me. Smoke and mirrors.

‘Think about it – they all want the debts they owe each other to be paid in full – but since they can’t afford to pay them, they have got our politicians to make US pay all the debts they owe to each other, for them.’

That’s kind of funny when you think about it.
What’s that saying – ‘robbing Peter to pay Paul’.
Fucking Peter and Paul are having a laugh at us.

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