This report gives you our latest Weiss Ratings for the weakest and strongest countries in the world. Only sovereign countries with stellar scores in four major areas — debt burdens, international stability, economic health and market acceptance — merit a grade of A- or better. Only countries that demonstrate severe and/or consistent weaknesses in the four areas receive a grade of D+ or lower. Currently, the data show that the U.S. government does not fall into either category. We rate it… Words: 1434
So says Martin Weiss (www.moneyandmarkets.com) in edited excerpts from his original article*.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.
Weiss goes on to say, in part:
We Rate the U.S. Government C-
- extremely low in terms of its debt burden (114% of GDP);
- very low for international stability, due mostly to low reserves; and
- also low for economic health because of recent boom-and-bust cycles.
Helping to partially offset these low scores, however, the United States ranks high for its ability to borrow in the global marketplace, raising its final grade to C-….[which] is only one step above our vulnerable category (equivalent to “junk” in the ratings scale of the Big Three)
Should the U.S. government fail to make significant changes in a timely manner, a further deterioration in the nation’s finances could trigger a series of events beyond its control. These could include:
- significant further reductions in the U.S. dollar’s role as a reserve currency,
- spreading reluctance by global investors to buy U.S. government securities,
- investor outcries for draconian cutbacks in government spending and these, in turn, could bring about
- a vicious cycle of economic declines, larger deficits and further investor demands for even greater cutbacks, much as we have seen in Europe.
What are the risks for you?
- Falling U.S. bond prices: The most immediate risk is falling market prices, especially in medium-term Treasury notes and long-term Treasury bonds, not only because of inflation and rising interest rates, but also because of increasing global uncertainty about the credit quality of U.S. government securities [which would] mean
- Higher interest rates across the board — for mortgages, auto loans, student loans, credit cards and more and that would mean
- a stagnant housing recovery.
In addition, global investors face the rising risk of losses stemming from a depreciating U.S. currency — a depreciation that’s caused, to a large extent, by the U.S. government’s own efforts to finance its deficits with borrowed or “printed” money.
What’s most surprising, however, is that:
- the U.S government — despite the cliff-hanger fiscal paralysis last year in Congress and the looming “fiscal cliff” this year — still borrows money at dirt-cheap rates, as if there were no tomorrow and
- U.S. government bonds — thanks mostly to trillions in support from the Federal Reserve — are still selling at sky-high prices.
As we’ve seen with the institutions and countries we have downgraded in the past, however, it’s only a matter of time before the chickens come home to roost. Just as our low ratings for banks, insurance companies and major countries served as accurate advance warnings of future financial troubles our C- rating of U.S. government debt stands as our advance warning of looming financial troubles in Washington.
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Our C- rating is not a forecast of default or failure but it does imply overwhelming future pressure on Uncle Sam to cut expenses, raise taxes and/or print money in enormous quantities.
Interestingly, under the direction of former U.S. Comptroller General David Walker, the Stanford Institute for Economic Policy Research has recently published A Sovereign Fiscal Responsibility Index which:
- gives the United States a low overall ranking of 28 among 34 countries covered;
- gives Spain, Belgium and Italy higher rankings than that given to the U.S.;
- gives only six countries — Hungary, Ireland, Japan, Iceland, Portugal and Greece — a lower ranking than America’s.
In sum, this research supports our view that America’s AAA/Aaa rating is an anachronism — and that even S&P’s downgrade is a woefully inadequate warning of more troubles to come.
The Lowest Rated Countries
Among the 50 countries we cover, 19 merit a Weiss Rating of C- or lower, much as the U.S. does. (C = fair, D = weak, E = very weak.) and what’s especially surprising is that among these, the overwhelming majority — 14 to be exact — are so-called advanced nations, also including Canada, Japan, and the United Kingdom. They have not yet been dragged into the mud like Iceland, Spain, Portugal, Ireland or Greece but they are heading down the same wayward path.
Canada has gross public debt at an unhealthy 91% of GDP. Plus, it is overly reliant on resources, many of which are suffering from falling global demand. Also, more than any other large economy in the world, its future is closely tied to that of the United States.
Japan has the biggest government debt burden of all — a whopping 256% of GDP. Although most of that is financed by domestic savings, it’s still an insurmountable drag on the nation.
The country’s traditional economic model — based on strong exports — is broken. And with a population that’s aging and SHRINKING, its domestic market is even weaker.
The United Kingdom, with government debt representing nearly 89% of GDP, sank into a double-dip recession in the first quarter of the year, while its manufacturing fell to the lowest level since the bottom of the last recession in 2009!
I need not remind you that other major European governments have already failed, requested bailouts or are on the brink of doing so — first Greece, then Ireland and Portugal, and now Spain [and possibly] even Italy.
The Highest Rated Countries
There IS a light at the end of the tunnel….and it’s coming from Asian countries outside of Japan and some other emerging markets. The 10 top-rated countries we cover all merit a Weiss Rating of B+ or better. (A = excellent, B = good) and surprisingly, seven out of the 10 are in regions that used to be called “developing” — Asia and Latin America. I’m referring to Singapore, Hong Kong, Thailand, China, Chile and more. These are countries that typically have large cash reserves, small debt loads, strong currencies and an economy that’s not stumbling every few years from boom to bubble to bust.
In the long run, their fiscal stability almost always pays off. Right now, for example:
Singapore merits the highest Weiss Ratings — A+. It is expected to grow by a better-than-expected 3%, led by construction that’s expanding 6.2%.
Hong Kong, although politically a part of China, is tracked and rated separately, earning a Weiss Rating of A. Its taxes are low. Its legal structure is modern and it has the dual advantage of being relatively open to Western capital, while also acting as the place for listing Chinese companies.
Thailand gets a Weiss Rating of A — and not just because its government debt is only 44% of GDP. Its economic growth is stable and high, expected to grow by about 5.7% this year. Just in May, for example, its industry grew more than twice as fast as analysts expected.
China gets an A-. Despite a recent softening in its high growth, its gross government debt is only 33% of GDP — and it still has the biggest cash reserves of any country in the world.
Chile merits a B+. Its gross government debt is one of the lowest in the world — less than 11% of GDP. Its currency is very stable, its economy slowing a bit but still growing steadily.
South Korea and Malaysia also merit a B+ for their moderate debt loads, stable currencies, economic growth, among the many factors we evaluate.
Your Action Plan
- Seek to unload stocks and bonds that may be vulnerable to a debt collapse and recession in the countries receiving the lowest Weiss Ratings even if their economies have traditionally be viewed as more “advanced” or “developed” and even if they still boast relatively high ratings from S&P, Moody’s or Fitch.
- If you are unable or unwilling to liquidate some of those assets, seek to hedge against their decline with bear investments — inverse ETFs or long-term put options that are designed to go UP if your assets go down.
- Start thinking more seriously about diversifying your portfolio to countries meriting the highest Weiss Ratings, even if they have traditionally been viewed as less advanced or less politically stable. The hard numbers show that those old precepts may be dead wrong.
Naturally, if global stock markets sink, these emerging markets are also bound to suffer a correction but that will merely mean you can get an even better bargain!
Bottom line: The growing schism between weak “advanced” countries and strong emerging market economies opens up a profit opportunity in two ways — first, big bargains in the near term, and then, major growth opportunities soon thereafter.
*http://www.moneyandmarkets.com/19-countries-in-fiscal-trouble-10-in-good-shape-49960 (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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