Hidden Agenda of the SEC

I recently watched an interview where the guest said, “Don’t pay attention to what the Chinese are saying and pay attention to what they are doing”. The Chinese credit rating agency, Dagong, is an action not actually posturing. The Chinese have been trying to leverage themselves into a dominant global currency for some time now, unlike western countries; the Chinese are very patient (http://dennishodgson.blogspot.com/search/label/china).


The Dagong rating agency is being purposely kept under wraps. The SEC is a government agency that regulates publically traded companies for the US and the world. Since the US is where everyone wants to do business, we have a lot of foreign investors in the US, so in essence we regulate the world. In 2006 congress passed a reform bill because of the scandals on Wall Street with the collapse of the US housing market. If anyone has ever had to comply with any government regulation in the last few years, you would realize the amount of red tape and paper work required to comply.

I recently worked for a publicly traded company in the IT department. I spent 1 week of every month just putting together all the necessary paperwork required to be compliant with the Sarbanes Oxley act. This act strips all companies of their independence and also puts the government in a position to where if they were to do a hostile takeover, with the compliance regulations of SOX, they could run your company without anyone even noticing. Also, the SEC has the ability to seize assets of companies just for suspicion of wrong doing, put the assets in a Swiss bank account, and when your name is cleared give everything back to you after 5 years of investigation while keeping the interest gained over the 5 years. So, you can see my hostility towards the SEC, but I can also be unbiased to an extent.

If you were to ask the SEC about why they turned down the Dagong credit rating agency, they will tell you that “…because the agency said it couldn’t reliably ensure that the Beijing company would comply with U.S. reporting rules.” What measure did they use to determine this? I think this could be major politicizing because of the threat that Dagong poses to the big 3 ratings agencies and the US. The Dagong Company threatens to change the way things are done in the US and in the Bond Market.

If you ask the Dagong company why they were denied they would tell you that China’s regulatory agencies are willing to resolve any cross border dispute the US has because China’s regulatory agencies do not see this as a violation of national sovereignty, The US has never tried to resolve any cross border regulatory dispute, and that they were willing to follow SEC regulations. Dagong has also cited that the US has asked to enter the Chinese market, which they were allowed to, and have occupied 2/3 of the Chinese market.

I see both sides politicizing this issue to its fullest extent. The US would have to admit fault in their rating system if they let the Dagong Company in and China is whining, with some good reason, about not being able to receive equal treatment in their eyes.

So, what’s really going on here? China is making an action to reform the way the globe does its ratings of countries. What does this mean for the US? We would lose our AAA credit rating, this would force us to be responsible, and this could give emerging countries a hand up on the US. Currently the big 3 S&P, Flitch, and Moody’s are the dominant ratings agencies in the world. The way they rate countries is on borrowing ability. With the US having the largest economy in the world we would have to have a major recession worse than the great depression in order to be downgraded. On the other hand the Dagong Company wants to change the game by rating countries based upon income to debt along with other factors, but income to debt is the main change here. With the US reaching now 94% debt to GDP this would slow down our borrowing ability and possibly shut down the government. In other words we would have a hard time paying our bills without the Fed doing QE1 and QE2 type of lending. This would force us to monetize our debt and possibly collapse our system. This isn’t all doom and gloom though. With an A+ rating we’re still in decent shape, but we’d be paying a higher interest rate on loans which would cause us not to borrow as much which would cause us to start becoming more fiscally responsible. On the other hand if we don’t heed these warning by our credit rating dropping then we’ll continue on our destructive path and eventually the gravy train will be over.

The likelihood of the Dagong company becoming globally recognized is close to nil. As far as our credit rating, we have nothing to worry about. What about the long term effects though? If the big 3 refuse to hold the US accountable or change the way they rate countries we’re definitely heading down the road to self-destruction. A friend I’ve been talking to said that China has a completely untapped market inside their country. If the Chinese decide to pull out of the global market as much as possible and just develop within their country, this could be bad for business here in the US. China could very well become the biggest economy in the world due to the sheer population, but this would take at least one generation to do. There’s really no telling what could happen except that US consumers would be competing with Chinese consumers to be able to sustain the lifestyle we currently have.

In conclusion, I would say the SEC made a big mistake in refusing the Chinese Dagong credit rating agency. Either the SEC is a bunch of elitist government officials or they did the right thing, but we may never know for sure. I will say that although China is a Communist country, they have a good idea and would possibly reduce the risk of global catastrophe. Right now the US is heading down a bad path and could very well end up on its head because those agencies entrusted to keep us safe and secure are actually causing the problem. This is just another thing to think about and say, maybe we should really look at this. It is always in China’s best interest for the US to remain the global exchange currency and to have a strong dollar because they reap the benefits of jobs and an export surplus, so don’t always think that they are our enemy, they are acting in their best interest which at this point happens to be our best interest as well.

Sources:

http://blogs.wsj.com/marketbeat/2010/11/11/chinese-rater-us-downgrade-us-as-creditworthy-as-costco/

http://www.youtube.com/watch?v=UDRZRSZ7GX4

http://dailyreckoning.com/chinas-dagong-credit-rating-agency-steamed-over-nrsro-delay/

http://finance.fortune.cnn.com/2010/07/28/chinas-dagong-says-u-s-rejects-it/

http://www.dagongcredit.com/dagongweb/english/pr/show.php?id=78&table=web_e_zxzx  http://en.wikipedia.org/wiki/Nationally_Recognized_Statistical_Rating_Organization#Credit_Rating_Agency_Reform_Act_of_2006

http://www.sec.gov/rules/final/2007/34-55857.pdf

http://www.zerohedge.com/article/sec-denies-chinas-dagong-market-entry-after-us-debt-downgrade

http://www.sec.gov/litigation/opinions/2010/34-62968.pdf

Federal Reserve Bankrupting America

Does history repeat itself? Are we in the verge of repeating the Weimar Republics mistake? I think the answer to both questions is yes. On the day after the elections when everybody is still discussing the results, the Federal Reserve is holding the QE2 meeting. In this meeting they will discuss a second stimulus to put more money into the system. From early speculation the Fed could be putting out between 500 Billion to 1.2 Trillion dollars into our economy. There are two problems with this meeting and the outcome. The first is that congress has no say in this, yay Republicans, and secondly, that this will devalue our currency even more.


The Weimar Republic is post WWI Germany. They had a revolution that was started by 3 sailors who pretty much started a coupe. Under the Weimar Republic the political atmosphere was a lot like we have here in the U.S., a lot of left and right wing people trying to get along. The Weimar Republic used a currency called the “Papiermark”. The Papiermark quickly devalued by going from 4.2 per U.S dollar to over 1 trillion per U.S dollar. The reason this currency was devalued so much was because they couldn’t stop printing money to pay their debts. The German public was completely unaware of all the money being printed. Later on they would start using the “Rentenmark” which was backed by the value of land. Eventually Germany became a member of the League of Nations with veto power. Over a period of just a couple of years the Rentenmark had the same issues as the Papiermark and started devaluing again. This is eventually what led to WWII Germany.

The general public, and I would even venture to say 99% of everyone in this country, does not know that the U.S. credit rating was lowered from an AAA to an AA rating along with other nations on July 13th of this year, some of whom are having riots in the streets as we speak. With the growing national debt reaching an even higher percentage of our GDP, some say 89%; we become an even higher risk to default. No one would loan you money to buy a house with that type of debt to income and neither would another country.

With our current policy over the last 30 years we’ve been taxing and spending our country away into debt oblivion. Now that the rest of the world is refusing to or at least staying away from buying U.S. debt, we now have to look at the Federal Reserve to bail us out and stimulate the economy. Not many people know that the Federal Reserve is not a U.S. government entity and also that it loans us our own currency at an interest rate.

In order to stimulate the economy the Federal Reserve will be printing money and buying its own bonds in order to keep interest rates low and because the U.S. has almost reached its “Debt Ceiling”, this won’t be voted on again until January.

This is where we are starting to repeat the Weimar history. Since the debt ceiling has almost been reached, the U.S. credit rating has been downgraded, foreign countries will not favor loaning the U.S. money, and we’re almost at 100% of our GDP with our debt, we have to start printing our own money to be able to pay our bills. This will devalue our currency even more. This means that a company like General Mills will be required to pay more for the grain they use to make cereal and the price will then be passed onto the consumer, but wait, are our wages going up? No, our wages will not be going up, our people will have a harder time just providing the basics and this could get out of control very quickly. We could very easily go into hyperinflation which is when the value of the dollar declines so quickly that it becomes harder for the markets to respond and prices skyrocket daily or even possibly hourly, and this ultimately leads to the collapse of a currency. The Weimar Republic only lasted from 1918-1933 and had two currency collapses.

In my final thoughts I ask, what is it that we can do to stop this? Considering George Soros gave the U.S. an ultimatum (http://www.youtube.com/watch?v=TOjckJWqb0A) that we either have a managed decline of the dollar or that the world will do it for us, George Soros is responsible for collapsing the “British Sterling”, and George Soros is also a friend and mentor to President Obama, I think that we have to take action quick. We should all write our Congressman and woman, our Senators, and the President and call for an impeachment and congressional hearings. What is happening here, if it’s not Treason, its borderline Treason. The President of the United States is purposefully trying to collapse our economy, do harm to its citizens, and possibly enslave us. We need to actually take some responsibility and start cutting our government so that we can have a balanced budget. Unfortunately we’ll probably have riots in the streets by the Unions like is happening in the UK and France because they have had to cut back spending in order to repair their credit rating as well. This is not an easy solution nor is it something that I think will actually be done, even under our new Republican leadership. So our choice is to become like the Weimar Republic or to stand up, tighten our belt, and realize that it will be hard at first, but like everything worthwhile we’ll enjoy the rewards.

Sources:
 
http://www.wnd.com/?pageId=188885

http://www.reuters.com/article/idUSTRE6A12IA20101103?feedType=RSS&feedName=topNews
http://economix.blogs.nytimes.com/2010/03/15/what-happens-if-americas-credit-rating-is-downgraded/
http://www.wealthdaily.com/articles/us-credit-rating-downgraded/2594
http://news.yahoo.com/s/nm/20101028/ts_nm/us_usa_fed
http://en.wikipedia.org/wiki/Weimar_Republic