Uncreditable credit rating agencies

S&P has affirmed  Hungary’s BB Rating. BB means “non-Investment grade”, commonly called “junk”.

I think the best thing is just to reblog a post of mine I wrote in last December.  The changes since then are as follows:

  1. Hungary produced the highest GDP growth (3.9%) in Europe in the second quarter of 2014
  2. the yields on Hungary’s bonds have fallen even more (1.4% on the 3-month T-bills).

Politics in Hungary

Yesterday’s news was that the credit rating agency Fitch affirmed Hungary’s credit rating in the “junk grade”.    They really didn’t bother much about the steadily improving macroeconomic figures Hungary has been producing recently (the budget deficit being firmly below 3%, GDP growth becoming stronger than  expected, a big trade balance surplus, Hungary’s stopping the growth of its public debt, the slightly decreasing unemployment rate while the  economic activity is increasing (!), the all time low inflation rate or the steady demand for Hungary’s treasury bills at an all time low base rate, etc.).  The key sentence in their report must have been this: “Fiscal discipline contrasts with unpredictable economic policies, especially with respect to the banking and utilities sectors.”  In other words:  the Financial Empire strikes back.

Where’s the red bean? (aka the shell game)

Let’s note that the big (US-based) credit rating agencies (Fitch, Standard and Poor’s and Moody’s) …

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4 Comments

  1. Southerner

     /  21/09/2014

    First of all, I am not an expert on Hungary’s economic well being. In other post over the last months you have shown that like all countries living with the results of the “Bubble” that burst in 2007-08, Hungary is caring a large amount of debt. Much of it was assumed as a result of the remnant socialist government borrowing heavily and a nation trying to undo all those decades of your former Warsaw affiliation.
    That said, i’m not sure it matters all that much. I think that is getting to your point isn’t it? What I mean is Hungary is wanting to be more independent politically and economically than the EU, IMF, US want.
    Even your recent improvement with the UK, (which almost wasn’t a UK last week because of a vote by those stubborn folks who built your Chain Bridge) will find they are back to wanting to be big players on the world monetary scene; so not to be counted on by Hu. It would be great if the UK were to form an economic alliance within the EU including Hu. with the PIGS so disenfranchised in the EU, inviting them other opinions and option on settlement of bad debts and rates. It would give a voice where there is not one now regarding the socialist and “Germanification” of the whole of Europe.
    It seems you folks are to be pressed because you are willing to be nationalistic which is the sin of being individualistic, very un-socialistic; so its off to the gulag and thought correction for you Hungary.

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    • “Hungary is caring a large amount of debt. ”

      Yes, that’s right. However, as I wrote, Hungary was rated “investment grade” in the autumn of 2008 when Hungary de facto defaulted under the misrule of the leftlibs and only a 25 billion Euro EU/IMF-loan could save the country. (And that loan was paid back by the Orbán-government one year earlier than it was due.)
      The ~80 percent debt ratio is not increasing anymore, in fact it’s slightly decreasing, and actually it’s comparable to the debt ratio of other European countries.

      I agree that Hungary and the UK, two odd man outs in the EU, should cooperate more!

      See https://politicsinhungary.wordpress.com/2014/06/13/two-nations-against-eu-orthodoxy/
      and https://politicsinhungary.wordpress.com/2014/06/28/orban-press-conference-after-no-vote-to-juncker/

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      • Southerner

         /  21/09/2014

        Granting that you are correct, remember that these same rating agencies were in charge of evaluating and rating AIG’s credit default swaps, overseeing the derivatives markets, and rating all those bundles of sub prime mortgagees as “AAA”. Those were the same AAA investments that tanked large swathes of Europe’s pension funds. How many of those folks went to jail over there?…. nor over here.
        Reality Check: London has the pound, the first or second largest financial banking center in the world, Banks chartered in that city do not have to observe collateral reserves for debts made through there institution, as a result hyper-hypothacation is rampant with massive inter banking system “loan Guarantees” that are based on nothing, and of course their seat on the UN Security council.
        Hungary (meaning no disrespect) doesn’t, what you do have and are trying to use to an advantage is: to keep good relations to the North and far East, keep your independent currency. and manage your cash flow outside the EU, IMF and the American banking systems control. Your doing as well as any could in your neighborhood given the world we are living in, your a smart nation. I hope you are successful moving forward.
        Its just the world economic systems are so hopelessly messed up, I think your possibly missing the point, there is not any economic reason for the systems to be functioning now. We are all just whistling past the graveyard pretending everything is fine. What is happening is not about you, it may be that you are experiencing a response to your independent spirit by those who see themselves as “your betters”. What do you think?

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        • Yes, the “AAA” ratings for those subprime mortgages, the excellent rating for Lehman Brothers shortly before its collapse show indeed that these credit rating agencies have other agendas than simply advising investors on the risks of their investments. They shamelessly serve vested interests.

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