The World Credit Rating Forum Builds Up Shelter From the Storm of the Second Credit Crisis
When the 2008 crisis abruptly stormed the financial market, the world was astonished to see the Wall Street, the FED, multiple financial institutions, homebuilders, and even the government of United States left stunned and unprepared. Ironically, upon the crisis, the ‘Big Three’ credit rating agencies still maintained a high rating towards the U.S. without recognising the fact that such a rating would never support a robust economy. The world was forced to face not only the outrageous subprime credit crisis but also a predicament for the global economy and credit distribution.
The global economy in turmoil
Statistics show that the global government debt of negative interest rate was a total $5.5 trillion in January 2016 and rose to $7 trillion a month later. It became worse in May as this number continued to climb crazily up to $9.9 trillion and even $10.4 trillion at mid-year. In less than six months, the bubble of sovereign bond nearly doubled. Eight years following the credit crisis, the same factors continue to threaten our society in a more severe fashion.
1. The Western credit ratings still help form credit relationships in many countries and flawed ratings are distributed to the world;
2. Compared with 2008, global debt increased 33% in 2015 with a 20% increase in Western developed economies and a 113.5% growth amongst emerging economies;
3. Compared with 2008, the GDP increased 19.4% globally in 2015 with a 5.2% increase in Western developed economies and a 57.5% growth amongst emerging economies;
4. Compared with 2008, the liability ratio of GDP had a 22.6% increase to 221.2% in 2015 with a 34.3% increase to 278.9% in Western developed economies and a 36.4% growth to 138.8% amongst emerging economies.
It is clear that excessive credit is a decisive factor of the second global credit crisis.
A voice that changes the world
When the 2008 crisis hit the markets, none of the ‘Big Three’ rating agencies was able to promptly act upon the catastrophe but nevertheless chose to protect the allocated high ratings for the world’s largest creditor, the United States. Despite the long history of the ‘Big Three’, their stances always represent Western interests instead of the common good of the rest of the world.
Throughout the past decade, there was only one time in 2011 that S&P downgraded the sovereign credit rating of the U.S. from the highest rating of AAA to AA+. However, S&P stated in June 2015 that the continuously improved economy of the U.S. might lead to a satisfactory solution for mid-term financial problems. Therefore, S&P stated that it might upgrade the rating back to AAA if there was a clear sign of success that Republicans and Democrats had endeavoured to achieve the resolution of fiscal policies, or that the government’s debt burden had become significantly reduced. On the contrary, the fiscal deficit of the U.S. incessantly widened, and the aftermath of the crisis intensely hindered its economic recovery. It is obvious that the S&P’s downgrading five years ago was nothing but a pretentious gesture, while the other two rating giants remained an arrogant attitude towards the ongoing economic catastrophe.
Mr. Guan Jianzhong, chairman of the Dagong Credit Rating Group, commented upon the fundamental reasons for the 2008 global credit crisis and stated that “the first global credit crisis was caused by excessive credit, where credit consumptions exceeded wealth creation. The U.S. had overly high liabilities without taking into consideration its repayment capability. Moreover, the international rating system initiated by the U.S. failed to provide accurate and fair credit ratings to the world. Instead, it built up a Wall Street centred chain of international credit interest using global credit capitals. The chain eventually broke down because it was based upon flawed ratings, and as a result, bubbled credit relationships came to an end as well”.
Innovation prevents crisis
The financial hurricane will soon take formation, as the second credit crisis draws near and sweeps the globe with its financial blows. Moody’s was once compared to a bomb that demolishes a nation, meanwhile it is today that another sabotage, which protects Western interests, is about to take effect. It is anticipated that impending consequences will amount to the same damage as the last crisis, and the Western economy, without a doubt, will be confronted with bullets of the crisis no matter how the global economy develops in the future.
The media and financial sectors’ concerns are not only on the subject of future fears or the cause of a crash in the financial system, but also possible developments or relevant ramifications of the current economic situation. In this regard, the Word Credit Rating Forum on July 18th2016 will gather leaders and elites from the political and financial sectors of China and abroad, including Mr. Guan Jianzhong, Chairman of the Dagong Credit Rating Group; Mr. Dominique de Villepin, former Prime Minister of France; Mr. Kevin Rudd, former Prime Minister of Australia; Mr. Shaukat Aziz, former Prime Minister of Pakistan; Mr. Igor Ivanov, former Foreign Minister of Russia and Mr. Alejandro Toledo, former Prime Minister of Peru. The forum will address multiple issues concerning the second credit crisis, such as the causes, current status, primary countries or regions suffering from the crisis,N and consequences. It will also post a warning to society in the hopes of reducing the impact of the second credit crisis upon the global economy.