Frederick Douglass

"Power concedes nothing without a demand. It never did, and it never will. Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them..." Frederick Douglass

Wednesday, July 6, 2011

Analysis: Portugal poisoned by Greece in cut to junk status update

The downgrade has had the predictable effect.

Portuguese Bonds Hit 12% For First Time Ever After Moody's Downgrade

They refer here to the yield. In other words, this is very bad for Portugal and will make it harder for them to sell their bonds.

And, a bit surprising, the EU has come out with a condemnation of the move. It may be feigned, but this does surprise me. It appears that the Union is acting responsibly here.

BRUSSELS (MarketWatch) -- The downgrade of Portugal's sovereign debt by Moody's Investment Service Inc. is an "unfortunate episode" that's based on hypothetical scenarios, as the country is just starting to implement its austerity program, the European Commission said Wednesday.

And Moody's, or their owners I should say, are not finished yet.

Warning over Irish credit rating

Ireland's credit rating may be cut to junk by Moody's Investors Service after Portugal yesterday lost its investment grade rating, analysts said today.

Moody's, which slashed Portugal four notches yesterday to Ba2 from Baa1, in April lowered Ireland's credit rating to the lowest investment grade Baa3 and left country's outlook on negative.

The ratings company cut Portugal's rating in part because the nation may not be able to return to debt markets in the second half of 2013.

Ireland has been locked out of markets since September, and the yield on 10-year Irish bonds has climbed 2.43 percentage points to 11.77 per cent since November 26th, two days before the European Union and International Monetary Fund agreed the country's rescue package.
"If not re-entering the public funding markets has significance for a sovereign's rating, then clearly if our view proves correct, then Ireland will suffer an imminent downgrade," Cathal O'Leary, head of fixed income sales at Dublin-based NCB Stockbrokers, said in a note today.

(Remember high yields are bad for the bond issuer.) Here Ireland is being threatened for "not re-entering the public funding markets." The reason they haven't is the bad rating they've received has pushed their yields sky high. Who wants to issue bonds when you will have to pay 11.77 percent on them! So here we have a ratings agency making the issuing of bonds nearly impossible, and then punishes a nation for not doing so. Clearly Wall Street is trying to force Ireland into doing something that may be good for Wall Street but god awful for Ireland. Let's call this what it is--predation.

And it's working:

Analysis - Weak economy may force second bailout of Ireland

Ireland needs domestic demand to take off if it is to persuade markets that its gross government debt, estimated by the IMF to peak at about 120 percent of GDP in 2013 compared to 157 percent for Greece, is sustainable in the medium term.

But people are hesitant to hit the shops with the unemployment rate stuck close to 17-year highs and the country only mid-way through a six-year cycle of austerity.

The national savings rate is around 11 percent, nearly triple what it was in 2008 when the recession kicked in, and the supply of consumer loans continues to shrink.

Tired of capitalism yet?