Ontonix:: how to correct ratings (or how to stop the manipulation)

When war is just too “dangerous” for the financial masters of the universe (even when their political puppets crave it) i.e. when the bankers aren’t able to effectively bankroll both sides, or the outcome is likely to be detrimental to their ability to retain power in a post-critical landscape – NOTHING to do with the number of innocent victims – their most effective means of waging war is to manipulate global finance!

We have already seen the US pursue a high risk QE strategy, aimed at retaining the, once mighty, USD as the currency of international trade, despite the fact that the American economy is shot (sic). In the unlikely event that one of the Middle East powers had attempted such bully-boy tactics they’d have been, swiftly, sorted out. So perhaps us Europeans should be thankful that we aren’t perceived as such a threat!!?

Nobody pays for a sovereign rating. It comes for free, at an agencies discretion. So, while the agencies decide to favour some countries, they try to discredit others. Ratings have become instruments of politics and strategy, and also weapons in an economic war. The lower the rating, the more it costs a government to sell bonds as it must pay higher interests rates. A downward rating spiral may kill even the healthiest of economies…

What rating agencies do not take into account is the resilience (the opposite of fragility) of an economy. A company/country can perform well form  a purely financial perspective but still be fragile. This new aspect of business can easily be taken into account. The same balance sheet, income and cash flow statements can be used to compute the resilience of a company to measure the resilience of its business structure. Once you have the conventional PoD rating and the Resilience Rating™, which ranges from 0% to 100% (100% means the business is very resilient and stable, 0% it is dominated by chaos) you simply multiply the two to obtain a Corrected Rating:

Corrected Rating = PoD Rating X Resilience Rating

This is clear in the image below, which puts together the two

Ontonix – Complex Systems Management, Business Risk Management.

Financial meltdown:: Monopoly for 1%…Russian roulette for 99%

I am fed up watching whilst politicians, bankers, rating agencies and “the markets” play monopoly! This article (link below) refers to the UK and dates back to 17th January 2011 with links to even older items.

UK Economy: A cynic’s summary

People are realising that we are not in fact all in it together but have, instead, a kleptocracy

What has happened since then is that the stakes are higher, based upon gradual exposure of the sheer scale of bank and sovereign debt – to the purists there is a world of difference to the rest of us any distinction between banker and politician merely reflects what stage they are at in their career – as a result of, at best, mismanagement and, at worst, unadulterated systemic greed.

I was really drawn to revisit this topic because of these pithy comments from TIm Hoad taken from a long-running discussion on Linkedin: “How realistic is the prospect of any country either being pushed out of, or leaving, the Eurozone?” Read more of this post

New bubble concerns voiced…at last: Can stimulus cure the ailing economy?

Quantitative easing is an experiment.

In some ways it is like using a new drug on a sick patient.

The treatment was started in March. It has not killed the patient. Nor has the patient been suddenly cured.

And the doctors of the Monetary Policy Committee have to decide whether to keep giving the drug.

They have opted to keep on with the treatment, but at a lower dosage.

Creating a further £25bn of new money over the last three months is a significant reduction in a programme that has been running at an average of £17bn per month.

So how will the bank know if the treatment is working?

The best proof would be a recovering economy. It has bearly returned to growth, according to the figures for the third quarter of 2009 from the Office for National Statistics.

But the Bank of England says that “a pickup in economic activity may soon be evident”.

Is it working?

Nonetheless, the Bank says it expects the recovery to be “slow”. Hence the decision to keep applying the stimulus of creating new money.

As the Bank freely acknowledges, economic recovery will not prove that quantitative easing (QE) has worked.

Economies are often resilient and bounce back after recessions.

There is no parallel universe with a UK economy that has not had the QE treatment with which we can make a comparison.

It is fairly clear that QE has had an impact in one area.

The Bank of England has used the newly created money to buy UK government bonds in huge amounts. That has helped to push down long-term interest rates in the financial markets.

Those lower long-term market rates should in in turn help keep down the cost of borrowing for businesses and home-owners.

But lenders are simultaneously trying to rebuild their profits and balance sheets.

So the benefits in terms of borrowing for many people are defined in terms of “think how much worse it might be without QE”.

New bubble?

The biggest concern about QE is that it may have nasty side-effects.

Because the Bank of England has been buying bonds from big investors they have money to spend on other assets.

Many observers believe that a lot of the money has gone into buying shares.

The concern that many people in the financial world, or City of London, express is that the summer rally in share prices was partly a consequence of QE.

A rally in share prices is usually welcome – not least to pension funds.

But if that rally is based not on fundamentals such as the prospect of better corporate profits, but on an experimental monetary policy, it begins to look suspiciously like a bubble.

And we are still clearing up from the bursting of the last bubble.