Read an interesting article in the Brunei Times (Sunday Paper - August 7, 2011) about US losing her AAA rating by Standard and Poor's (S&P).
From my perspective, believing rating agencies is just like believing "Pigs can fly!"..... Why? I tell you why...
According to S&P:
"…we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process."
Their implication (highlighted by the italicized passages) is clear: they believe that without spending cuts or increases in revenue, the US may be forced to default.
What happen to the US recently on the debt ceiling was idiocy at its best. That debt ceiling was a self impose limit placed in 1930's as mean to limit the US from creating more money without the backing up of gold. Now, the world is operating on "fiat currency" including the US since 1971, when the last remaining gold standard was removed by President Nixon. The issue with the US debt debacle was not the ability to pay her debts but the willingness to pay!
Sincerely hope that our Government ignore them. What credibility these rating agencies have now, when they rated toxic, subprime debt to AAA?
In all honesty these rating agencies are waste of time and space when rating a monetarily sovereign countries. A monetarily sovereign nation cannot possibly find itself in a position where it cannot repay debt denominated in its own currency. 100 percent of US debts are denominated in US dollars! How can a country such as US whom is the monopoly issuer of US dollars can not pay its debts!
Good example is Japan. It had been downgraded many times by these rating agencies; On 27 July 1992, Japanese rating was AAA (by S&P) and by 27 May 2011, Japanese was rated AA- (by Fitch); and yet their debt are now 200+ of GDP and we did not hear any financial hysteria similar to Greece, Ireland, Spain, Portugal and etc. In fact Brunei still export gas to Japan and currently negotiating for extending the gas supply contract.
Recently Brunei announced that the government was thinking of issuing Renminbi or any other denominated currencies. To me that was an ill-informed decision to the part of Autoriti Monetari Brunei Darussalam (AMBD). Brunei should not contemplate any idea of issuing sukuks in foreign denominated currencies. If Brunei do it, the country shall be at the mercy of these rating agencies. Brunei should only issue Brunei dollar denominated sukuks.
