Felix at Portfolio.com asks the worrisome question:
Can the yield on US Treasuries be considered the "risk free rate of return" if there are other securities which are lower-risk than US Treasuries?Apparently Moody's has broken up their AAA rating into three tiers and the United States is not in the top tier (though I am left wondering who trusts / listens to / respects / cares about Moody's these days). Reuters reports:
The "Resistant" category included Germany, France, Canada and the four Scandinavian countries, whose ratings have so far been untested. These countries have either entered the financial crisis from a very strong position or have economic models that remain robust, it said.Click for Larger Table
The "Resilient" group comprises the United States and the UK, whose ratings are being tested due to a shock to their growth model and large contingent liabilities. But it added: "These countries display an adequate reaction capacity to rise to the challenge."
The size of the U.S. and UK economies, financial markets and capital flows and relative debt levels to growth mean policymakers have more scope to loosen fiscal policy without endangering the public finances too much.
Ireland and Spain fell into the third, "Vulnerable" group, which refers to nations which are forced to take risks with their public finances.
Anyone ready for a conspiracy theory? Drumroll please.... this announcement by Moody's comes on the same day as Dr. Greenspan's panning of rating agencies. The Big Picture quotes Dr. Greenspan as saying:
“What we have created in this world is an aura around the credit rating agencies about certification from them is the Good Housekeeping seal of approval, ” Mr. Greenspan said. “I will tell you the record of a lot of the forecasters of ratings have not been distinguished. They never were.”Was this whole announcement just meant to deflect away Dr. Greenspan's criticism? I doubt it, but I bet more discussion centers around the Moody's rating decision than Dr. Greenspan's quote in the A.M.