The biggest investment market in the world is the bond market, not the stock market.
The problem is that the Federal Reserve Bank is printing money, the US Treasury is borrowing money, and many US tax payers are going broke. How can we keep borrowing and printing money and have the world trust us to pay our bills? Who will lend money if the world stops trusting the US to manage its economy?
In late July the premier Chinese bond rating agency, Dagong Global Credit Rating Company downgraded US sovereign debt to AA. For reference, Dagong rates Chinese debt at AA+ and Germany and Japan are AA-. The action wasn't mentioned in Western media.
"This downgrade marks a new beginning for reforming the irrational international rating system. The essential reason for the global financial crisis and the Greek crisis is that the current international rating system cannot truly reflect repayment ability." ~Dagong's Chairman, Guan Jianzhong.
In other words Jianzhong is politely saying, "The world cannot trust US bond rating systems. It was this rating system that caused the crisis in the world."
Prior to the subprime crisis, rating agencies Moody's and S&P were highly respected. After the mortgage market crashed, it was discovered that they were rating subprime debt - mortgages made to people without jobs and based upon overvalued appraisals - as prime AAA. We've heard a lot about AIG, Bernie Madoff, and Lehman Brothers but little about Moody's and S&P. Without their blessing, there'd never have been a subprime crisis.
And guess who owns Moody's? Warren Buffet.
Warren is a very smart man, but he's not the most forthright. Today, even after Moody's deceptive rating practices have been exposed, Warren continues to be portrayed as the kindly, folksy grandpa - the sage of Omaha - encouraging people to have faith in America while his company deceives the world.
This is why Jianzhong's statement, "This downgrade marks a new beginning for reforming the irrational international rating system," is important.
The once powerful countries of US, England, and Japan have a new sheriff in town, a Chinese rating agency known as Dagong.
If the world economy is to recover, we need more honesty in global finance.
Since all government money is now debt, dependent upon the global bond markets and their rating agencies, it's best to have some real money - gold and silver.
