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The New World Order of Global Sovereigns: When Corporations Have Better Credit Rating
By EconMatters
The U.S. debt ceiling political soap has finally come to an end. With the debt deal done, the U.S. has dodged a major bullet of a debt default, but is not out of the woods yet for a sovereign credit downgrade. Regardless whether one or more of the Big 3 agencies (S&P, Moody's and Fitch) would deal a credit downgrade to the U.S., it is the markets that holds the key to a sovereign's credit worthiness based on its ability to manage a balanced budget, implementing proper monetary and fiscal policies. From that perspective, the markets probably have already spoken.
A Reuters analysis discusses that typically the sovereign -- the government -- is seen as the most solvent entity in the country, but with a number of governments face bigger risks of downgrades or defaults, some multinational corporations are enjoying higher cash flows, and set to benefit from higher ratings than their sovereigns.
According to Reuters, in the United States, the cost of insuring the debt (i.e. CDS or credit default swap) of Automatic Data Processing (ADP), Exxon Mobile (XOM), Johnson & Johnson (JNJ) and Microsoft (MSFT) against default on a five-year horizon is at least 20 basis points lower than that of the U.S. government (See Chart) All four U.S. companies boast triple-A ratings, the same as the U.S. government, but S&P has said that a change in the U.S. sovereign credit rating or outlook will not affect these four corporations.
Moreover, a New World Order has emerged for the global sovereigns, as Reuters reports,
"Globally, 107 corporate and local governments have higher ratings than those of the sovereign in their country of domicile on a foreign currency basis, Standard & Poor's says. That means these entities are seen as likely to be able to cover their debt obligations even when the central government of the country they are based in cannot."
"Balance sheets of OECD countries will continue to deteriorate. You're looking at a medium to long-term credit downgrade cycle over the next five years," said [Ashok] Shah [chief investment officer of London & Capital.]
Indeed, with a whopping $76.2 billion in cash and marketable securities, Apple (AAPL) now has more cash than the U.S. government. Some jokingly said the U.S. government could ask Steve Jobs for a loan and that Uncle Sam should start selling iPads.
These might seem like jokes for the time being, but they also might have foretold things to come in the relationship between corporations and their respective domiciles, and the changes in government entity structure where sovereign may operate more like a business.
Further Reading: A U.S. Sovereign Credit Downgrade Is No Laughing Matter
Check out our blog Dynamic View.
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Econ says .... Some jokingly said the U.S. government could ask Steve Jobs for a loan and that Uncle Sam should start selling iPads. This regime has alreaady set precedent and nationalized half a dozen concerns. Whats to stop them from confiscating the most well run so they can spread the ill gotten wealth around?
corporations do not have better credit ratings than their respective governments. you're deluded and so are any of the clowns who actually believe in this BS.
Not surprising that corporations have better credit rating. They are supposed to work for profit. The government isn't.
Yes, we'll soon be ruled by a snack food company.
Lets keep in mind that an AAA rated RMBS or an AAA rated corporation is a hundred times (maybe a thousand times in the case of the security) more likely to default than an AAA rated sovereign nation.
In other words, the ratings agencies rate countries much much more harshly than the private sector. Its a rigged game.
...made to feed the CDS scheme. OUTLAW CDS.
Someone needs to raise the question of how short the market Bill Gross (PIMCO) was as of this morning. Talk about more scandal............
Someone needs to raise the question of how many US Congressmen were short the market through the period of 7/21 - 08/02. Talk about scandal............
The idea is to destroy the nation state and instead substitute corporations. Those will be the new feudal plantations. One world company inc. Corporations have no national loyalties. No goal other than to make money for share holders and increase market share. This is in effect what we already have. It's just becoming more apparent and more in our face than ever before. Remember the scene from Network:
http://www.youtube.com/watch?v=7sySuIXG_IM
When the s**t hits the fan, businesses will get splattered too.
What will be the outcome of CDS like that of Greece and others that the ratings agencies have removed their ratings? Won't that be catastrophic... soon?
CDS are a catastrophe. Period. They are pure Ponzi, the worst creation of the Casino Banking mindset. They are below Speculation.