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Credit rating agencies - myth or a reality !!!

Kulin Choksi | Saturday 6 August 2011 ( 1 Comment)
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In the midst of the economic downturn which most of the countries are going through we woke up to another sad news which states that S&P has cut the most prestigious US rating from AAA+ to AA+ due to many uncontrollable factors. The immediate response by the president of united states says that we do have a question mark on the credibility of the S&P and its rating agency. How is this going to impact the already panicked and feared US markets when they open for trade on monday only time will tell us. US and European economy has suffered from more of fear of crisis then the crisis itself. On top of that such rating agencies like S&P, Moody, and Fitch (the best ones) are adding to the fire by downgrading the countries and their economy. The big question which i always fear is how reliable and how vital are these companies and their ratings which show the accurate position of the economy. I still haven't got the answer for it but i do believe these agencies to more or less extent are vital and reliable to portray the accurate situation of a particular economy. On the basis of collective information i have found that these rating agencies work on a very strong base of data which helps them prepare and come up with such ratings. The main reason why the US has lost its top notch rating is because of the deficit which has reached the highest level since the decade or even years behind it. Adding to the deficit is the unemployment data which is still above the 9% mark which is still fearfull for the economy. The growth forecasts being reduced for the next two quarters and manufacturing data showing the weakness in the growth has altogether resulted in the credit downgrade. In the euro zone the money that would be needed to bail out italy and spain is huge than anyone can imagine. But where do the emerging markets like India and China stand??? I guess India holds a very strong position in the world economy with more and more of companies going local then global and swaying away from the external shocks. All in all we are heading towards a more systemic failure rather then a structural failure and it would take some very heavy changes in the way we live and companies and the governments function across the globe. Till then we all have such rating agencies who would continue monitoring the growth and function of the economies and keep portraying the necessary image by either upgrading or downgrading economies. Credit rating agencies are a reality to some extent and we have no other option as well to not believe them. 


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