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bluetwinkle

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  • Jul 14th, 2011 @ 12:43pm

    (untitled comment)

    The problem with these rating agencies is that they are (mostly US-based) private entities who wield substantial power over the economies of foreign countries. For instance, American rating agencies have just lowered Ireland's credit rating given the country's recent economic difficulties. Once the credit rating has been lowered, the country now faces increased interest rates if it needs to borrow money, or if it issues bonds.

    This in turns affects the country's economy, as it is now much more costly to borrow money. This becomes a big problem if the credit rating is not representative of the country's actual ability to pay, or of the actual risk of defaulting. It basically means that the rating companies can sabotage a foreign country's economic recovery just by giving out an "opinion".

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