France lost their “AAA” rating yesterday which caused a few ripples throughout markets overnight. My questions are; how was France AAA in the first place? They are an economic and financial basket case, and they were only cut one notch? NOW they are rated the same as the U.S.? The U.S. without a “triple A” rating issues the global reserve currency which means the money is what? Not AAA?
I could go on and on with questions that can only be answered with non-logical answers but I won’t. The fact is, NOTHING that is paper on the planet should be even close to a triple A rating, NOTHING. There are no entities left today that would have been rated AAA back in the 50’s or 60’s. The yardstick has been moved, stretched, compressed and otherwise massaged to allow a few entities into the this pristine club. The problem in reality is that BECAUSE of the dire shape of the sovereign’s that issue the currencies, the currencies themselves are bogus. This is really a chicken or the egg question and no matter how you look at it, the chicken is spoiled and the eggs are rotten.
I don’t know how the ratings agencies can even be taken seriously, they are in essence “judging” giant piles of horse manure and deciding which ones smell the least. It has really come down to “who is the least bad” which is really a poor way to go when you are investing your hard earned capital. France being downgraded and next up is another look at the U.S. during and after the upcoming debt ceiling/fiscal cliff/sequestration 3 ring circus, at some point investors will figure it out.
“Figure it out?” Yes, the simple fact that nothing paper is AAA or even close. As it stands now, only “stuff,” in hand and verified as real is worthy of a “AAA” rating. Gold, Silver, oil, art, antique cars or what have you, “stuff” is what it’s all about. Stuff, which can be verified as “authentic” has value, REAL value, intrinsic value, value because of what it is, does, or can be used for. Which leads me to this; once “stuff” begins to have more value than “paper”, you then enter the zone where even by the government’s definition of inflation, you have entered it!
This is really key, once people begin to opt for “stuff” instead a AAA rating, hyperinflation becomes a danger. When I say “hyperinflation,” I am not talking about 10% (which we currently have), not even 20 or 50%, no, I personally gauge “hyperinflation” as adding zeroes which means 100’s of %. Hyperinflation is a funny animal and in fact nothing more… or less… than confidence. Confidence in the currency. Yes I know, the classic definition of inflation is the growth or over issuance of a currency, however, that currency MUST have the confidence of its users. Otherwise the “users” opt to exchange their currency for stuff, en masse, without hesitation and as fast as they can possibly do it.
ALL of the prerequisites are already in place for a hyperinflation. The money stocks have been bloated, confidence (both officially and privately) is waning and the “trend” of opting for stuff is already 10 years+ in the making. All we need now is a spark and the entire paper forest will burn down faster than you can call your coin dealer who will have nothing for sale anyways. Soon, one of these efforts at kicking the can down the road will backfire and the “spark” becomes an outright panic. Unfortunately, we live in a very different world than in the past. Far more leveraged, far more divisive, far less prepared and far more “ripe” today than during any previous panics.