Food for Thought

Talks about sovereign debt default by Greece, followed my a few other countries, are gaining credibility. The ECB is likely to start dropping interest rates fast, and in the not very far future we might see close-to-zero rates. With inflation at anything higher than the ECB rate, essentially they are paying for people to take the Euro. What I am interested in right now is how the ratings agencies that are followed and very respected by the investment 'community' as a tool to monitor investment risk (in spite of catastrophic misjudgements in the past), may be turning into one of the investors worst enemies. "A banker will lend you an umbrella when it is sunny and take it away when it starts raining. A ratings agency will ensure it rains as soon as there are enough clouds."  Well, rating agencies can and do make the rain pour when it is cloudy. i.e.,  Their actions result in higher costs of borrowing when what is necessary is the opposite, thus ensuring that the s...

The current economic crisis is frequently blamed on over-borrowing by states, banks and citizens. I suggest another angle: the source of the problem is excessive accumulation of wealth, by some countries such as China and large financial groups, such as pension and hedge funds. Think about it. Money had become cheap, very cheap, in recent years. The hoarders needed to put the money to 'work', they had run out of productive businesses to invest on, so the competition between these hoarders intensified, causing drops in the cost of money and enticing many countries and a significant part of the population to take debt as a normal fact of life. Money is still cheap, suggesting that the hoarders still have huge reserves, but they are also worried that they might not be repaid in full, so they throw s#*t into the fan by forcing austerity measures that should ensure that they get paid before anyone else. Borrowers had choices on who to borrow from while money was cheap. Once th...