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Weiss Ratings, an arm of Jupiter, Fla., research firm Weiss Research, has initiated coverage of sovereign nation debt by ranking U.S. debt at “C,” a level it calls “two notches above junk” status.
Weiss Ratings puts U.S. debt at 33rd of 47 nations it rates, below China and other Asian exporters but above debt-plagued European nations such as Ireland, Greece and Portugal.
“If you own medium- or long-term government notes and bonds, dump them immediately,” said Martin Weiss, chairman of The Weiss Group, in a release.
“If you have your cash in short-term U.S. Treasury bills, be sure to surround them with investments that go up when the U.S. dollar falls,” he said. “And if you wish to profit from this crisis, consider adding still further to those contra-dollar investments.”
Weiss said that the ratings decision was made to protect investors from triple-A ratings given to U.S. debt by the three largest ratings agencies — Standard & Poor's, Moody's, and Fitch Ratings — which he called “fundamentally unfair” to investors.
“It fails to warn you of real dangers. And it helps keep your yield far too low to compensate for the risks you're taking. Investors urgently need a more honest rating,” Weiss said.
The false security of such high ratings means that politicians are likely to feel that they can continue to debate U.S. spending at a time when action is necessary, Weiss said. “If they had only issued a fair rating years ago, it could have played a pivotal role in helping lawmakers and policymakers take earlier remedial steps,” he said.
He went on to predict, absent of a serious spending reforms, a “further deterioration in the nation's finances” likely to trigger “a series of events beyond their control,” including:
• The dollar losing its status as a reserve currency.
• Global investors, already dumping the U.S. dollar, dumping U.S. bonds in a panic.
• Investors demanding draconian cutbacks in U.S. government spending.
• In turn, a vicious cycle of economic declines, larger deficits, and further investor demands for even greater cutbacks.
In the Weiss ratings scale, ranging from “A” (excellent) to “E” (very weak), only sovereign countries with stellar scores in four major areas — debt burdens, international stability, economic health and market acceptance — merit a grade of “A-minus” or better.
Meanwhile, on the low end of the scale, only countries that demonstrate severe or consistent weaknesses in the four areas receive a grade of “D-plus” or lower, according to Weiss Ratings.