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Monday, August 8, 2011

8/8/2011 - Credit Ratings Drops Is A Manipulation, Not A Response

Credit Ratings Drops Is A
Manipulation, Not A Response

By Dick Eastman


The EU defaults and threatened defaults increase capital flight. Flight to where? To US treasuries. The Standard & Poors rating drop, I suspect, has the purpose of making our treasuries look less attractive -- making them more less attractive to borrowers. A IOUs are priced according to expected deflation (or inflation, when there is any) and risk of default. When Standard & Poors cuts the rating of a nation, always has much more of an impact what the raters say they judged their decision upon. (In other words, their own decision is the most powerful determinant of the credit worthiness they supposedly are basing their judgement upon.) So US treasuries sell at a higher interest rate. (In other words, US IOUs of a given face value are commanding a lower price because of alleged perceived default risk -- they command less money - meaning that for the US loanable funds are more expensive for  to obtain). And obviously it was done on purpose.


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