Cover story rating the ratings agencies_ fff and _watch out_ best ways to invest in gold

Cover story rating the ratings agencies_ fff and _watch out_ best ways to invest in gold The election had hardly moved off media centre stage than we were bombarded by the pontifications of self-styled “ratings agency” Standard & Poor’s. How to invest in gold coins in india Actually S&P and its like are less agencies than businesses that in a competitive environment assess the creditworthiness of businesses (and more recently governments). Competition pressures have sometimes resulted in these agencies reporting more favourably on some businesses than the facts might justify. Should i invest in sbi gold fund Actually, it has emerged that, in the run-up to the global financial crisis, such actions may have


intensified the impact of the crisis. In recent weeks S&P has put Australia “on watch”.

How to buy etf gold in india In its judgement our government is not doing enough to bring our budget back into balance; accordingly, the agency threatens, at some future time, to downgrade Australia’s AAA rating. How to invest in gold using cpf Such a downgrade, so our government has been persuaded to believe, could result in its having to pay a higher interest rate on its borrowing. In other words, our government has been naughty a boy and unless we do as the good ratings agency tells us we could be punished.

Sadly, our government and its opposition, along with most of business and many economic commentators, take these agencies seriously. Should i invest in gold or silver 2015 Which is truly amazing. The only useful purpose ratings agencies serve is to provide lending institutions and investors with accurate assessments about the creditworthiness of their customers. Invest in gold hdfc Over recent decades, however, they have, encouraged by certain economic ideologies, begun to make judgements about government deficits.

Before 1971 Western governments conducted their international transactions on the basis of the Bretton Woods Agreement. Should i buy gold coins or bullion National currencies were fixed in relationship to each other and to the U.S. Invest in gold public bank dollar; the dollar itself was tied to gold valued at $US32 an ounce.

The end of the Bretton Woods agreement meant that the West’s currencies no longer remain in any fixed relationship with each other. Is it good time to invest in gold in india They are what economists call “floating”. How to invest in gold online sbi Their values relative to each other change constantly in line with buying and selling pressures attaching to them. Ways to invest in gold india The floating of currencies gave ratings agencies the opportunity to opine on the creditworthiness of governments.

More about that later. How to invest in gold bonds Meanwhile, a plea for reader tolerance. Readers should not be put off because this article is about finance. Should i invest in gold 2015 Contrary to popular belief there is nothing difficult about finance.

How to invest in gold through demat account All that is required to understand it is a capacity to add subtract, multiply and divide numbers. How to invest in gold ira Of course, the subject is larded with opaque terminology, which is designed to hinder customers of financial institutions from understanding what is going on. Consider the term “collateralised debt obligation”.

How to invest in gold online In fact it’s quite a simple concept. Is it good to buy gold in usa Devious and deceptive, but not complicated. When most of us buy a house we don’t have the full purchase price immediately available.

How to invest in gold market We borrow from the bank what we need in addition to our savings to buy our house. Is it good to invest in gold coins The bank owns the house until the loan is paid out. In the days when banks were more honourable, they held the loan themselves. Invest in gold etrade When the last repayment was made, the bank discharged the mortgage and handed us the deed to our house. When is the right time to invest in gold From this transaction the bank earned itself a modest fee and interest on the loan over the life of the mortgage.

However, in the last 20 years or so banks, especially in the United States, decided to get clever. Is it wise to invest in gold Instead of holding these mortgages, they decided they could make more money by charging much higher fees to borrowers and selling off the loans to others.

The more house loans they made the more money they made for less risk. How to buy pure gold in india Having sold off the loans, they no longer cared whether the borrowers repaid the loans. Invest in gold or stocks In fact they actually promoted loans to buyers who could not pay. Can i buy gold in dubai airport Their reward was the borrowing fee. Banks behaving in this way bundled home loans together, some good, many bad, and sold them off to unsuspecting buyers all over the world: other banks, investment agencies, pension funds, for example, which believed they were buying rock-solid housing loans.

Guess what! The term “collateralised debt obligations” (CDO) was coined for the packages of loans so created. Nothing complicated about CDOs, but they are a thoroughly unscrupulous form of business behaviour.

Should i invest my money in gold Not strictly illegal perhaps, but deceptive, since those creating the CDOs knew that many of the loans in the packages had been made to borrowers who had no means of repaying the loans. Many of those buying these so-called CDOs (which included some large and reputable banks) believed them to be sound mortgages. How to invest in gold royalties The global financial crisis was caused, in part, by CDOs.

How to invest in gold and silver in india Or, at any rate, by large-scale defaults on the part of many who had been given loans that they could not repay. After the crash, it became impossible to value the packaged mortgages; within the package were some good mortgages, many bad, and some actually valueless. Is it wise to invest in gold Taken together it was impossible to calculate the real value of any given package. One fact, however, was clear.

Invest in gold online india In the securities market the packages represented huge losses for buyers, and these including large and famous banks all over Europe and North America. Should i buy xbox gold No wonder the whole episode caused an economic crisis in 2008 from which the world has still not recovered. Irresponsible bank lending for housing in the U.S. How to invest in gold mining stocks was the fundamental cause of the crash, and ratings agencies had been involved.

How to invest in gold in share market in india They were involved insofar as they rated CDOs – composed of ingredients sliced and diced beyond recognition – almost without exception as AAA. Why, given all this, do governments take notice of such agencies? Good question. Why you should not invest in gold A better one might be, why did governments with their own floating currencies not recognise that they had no need to take notice of them?

Ratings agencies certainly had a legitimate role in assessing in the creditworthiness of businesses. When should i buy gold As to governments, they might have had a role in assessments of the creditworthiness of governments of questionable honesty. How to invest in gold for beginners Or perhaps those governments without their own currencies (such as Eurozone countries or Hong Kong.

) But sound governments with their own floating currencies have no need of them. It will be asserted that without a AAA assessment a government’s borrowing costs will be higher. Invest in gold nz There is no evidence to support this assertion. Why you should invest in gold When ratings agencies downgraded Britain and the U.S., interest rates charged on those countries’ government borrowings actually went down.

Current orthodox economic wisdom insists, incorrectly, that government borrowing is a bad thing and that governments should work within a balanced budget. Is it wise to invest in gold And it is the state of the budget deficit that ratings agencies assess. Question to our government (and opposition): if we are not to borrow, how can ratings matter since all they affect are rates of interest on borrowing? More seriously, we should question how much is really known about government finance by governments and those advising them.

Can i buy gold in dubai and bring to india The widespread belief is that governments are like households – they must not spend more than they earn (tax collections being analogous to earnings). Apart from being theoretically wrong, that view is actually illiterate.

Invest in gold bullion uk Citizens and businesses must earn income before they pay tax. Is it safe to invest in gold Governments can only collect tax after earnings have been generated and tax paid on them. Why should i buy gold In other words, governments must spend money into the economy to generate economic activity to sustain business and to pay workers. Is it a good time to invest in gold 2015 Only then can tax revenue be collected. As to the theory, Alan Greenspan and others have made it clear.

Should i invest in gold or silver 2015 Here is what Dr Greenspan said in a speech back in 1997 when he was chairman of the U.S. Invest in gold public bank Federal Reserve Bank (others similarly placed have said the same thing): “Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit … “That all of these claims on the government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency.

Should i invest in gold or silver A fiat money system, such as we have today, can produce such claims without limit.” So, there it is. Why should i buy gold Dr Greenspan says of the U.S. Should i invest in gold coins government that there can be no such thing as credit risk. How to invest in gold in india sbi What he and others have said about the U.S. Is it good to invest in gold coins is, for the same reasons, true for Australia. Should a person invest in gold We will always be AAA, regardless of what any ratings agency might say. How to invest in gold india What actually happens in the real world backs this up. Of course Dr Greenspan was careful to explain that because governments could spend their own currency without limit did not mean that they should.

Should i buy gold plated jewelry Government spending should be a means of energising the economy. If the economy is operating at less than full capacity – if capital and labour are not being fully utilised – then the only solution is for the government to inject spending into the economy. Think about it. Invest in gold india When the government spends it buys goods or services from business; or it employs nurses or teachers.

Ways to invest in gold india They in their turn buy goods from businesses, which then invest more in capital and labour. How to invest in gold in india When the government cuts back on spending or collects more tax the opposite happens.

Thus it becomes clear that, when the economy is not using all its capacity, the government should do what Dr Greenspan says is possible: spend. Why invest in gold coins However, if the economy is overheated; that is, if there is more demand than supply, then that is the time for the government to take spending out of the economy by raising taxation.

Given what we know from Dr Greenspan and others and given the sluggish state of our economy, what do you think the government should be doing now – spending or saving? *NB. Why invest in gold 2013 I am grateful to Professor Bill Mitchell of Newcastle University for some of the factual information in this article. Invest in gold india The opinions are my own. Site: http://newsweekly.com.au/article.php?id=57392