Saturday, 30 July 2011

Who is Deven Sharma ?

If I told you that the most important person in the world now is Deven Sharma, you are most likely to be flabbergasted. Deven who ?? I am absolutely certain that not one reader of this blog has heard of him before. In fact I am sheepishly admitting that I had not heard of him either, one week ago. And yet for the next one week, he may actually be the most important man in the world.

Of course, this is hyperbole. But then what is journalism (ha ha) without some excessive exaggeration of reality. You can debate about the "most important man in the world" bit, but the actions of him and his organisation are certain to affect the world very profoundly in the week to come.

Deven Sharma is the President of Standard & Poor's one of the world's three premier credit rating agencies - Moody's and Fitch being the two other. In a short while, all the three agencies have to take a call on downgrading of America's Tripe A rating.

The drama in America on the debt ceiling goes on. This weekend, it has to come to a climax.  There is still a real possibility that the debt ceiling will not be raised, which means that come Tuesday, America will be in crisis, as will the rest of the world. This must be the outcome the three credit rating agencies must be secretly hoping for , as it makes their decision easy and non controversial - an immediate downgrading of America's debt. But the greater (barely) possibility still is that some highly sub optimal deal is struck and the ceiling raised. At which point the rating agencies have a problem on their hands. They need to decide.

The grapevine is that Moody's and Fitch are likely to preserve America's triple A rating. But S&P is tending more towards a downgrade. Deven Sharma and his team then have an important decision to make. If they downgrade, that symbolic act will probably be the last straw on the camel's back and financial mayhem is likely to follow.

The rest of the world has already downgraded America's debt in their minds. But everybody is waiting for that last straw before they can stampede. Something symbolic that will then trigger a chain of events that will be felt throughout the world. 
How has it come about that a hitherto unknown Indian American holds the key to what might happen to the world very shortly. OK may be "just a little" exaggeration, but I am afraid, not far from reality.


Prats said...

Very true... It would actually be a mayhem.... The world economy is already held by a thin line with Greece & Ireland almost dying America would send the world in topsy turvy spin

Anonymous said...

Hmmm....its gonna be release of 'Doom 3" next week! Lets watch out!!

P.S: 'Dhoom 3' a sequel to "Dhoom" and 'Dhoom 2' (which are Yash Chopra blockbusters released in mid 2000s) is supposed to be relased shortly.

Anonymous said...

Well I too had no idea who Deven Sharma is until reading this, but I think there is a different reason for that.

Both Moody's and S&P gave AAA ratings, virtually across the board, to the the toxic subprime derivatives that were at the heart of this global economic meltdown. Following that, both ratings agencies lost all real world credibility. These agencies may have stamped American's debt as AAA, but the reality is that many countries have been gradually shifting their % of US debt holdings downward.

Also, what a lot of people don't understand is, who does America really owe this money too? I think a lot of people out there think we owe it all to China and other foreign countries. The debt, by and large, is owed to the American public. The majority of 401k plans and a good portion of investment portfolios held by Americans are heavily staked in US Treasuries.

A lot of these fund managers and investors have also reduced their debt holdings and transitioned to other 'safe' investments such as precious metals. The fact that gold continues to climb shows how little confidence there is in US debt and to me is the most disturbing trend I see. Gold should not still be climbing, it's mind boggling and indicates we have a loooong way to go.

S&P may have said America is AAA, but the people who actually buy the stuff don't agree. I personally don't think what Mr. Sharma has to say about it is going to make much difference. It's already a fire sale, no matter what Congress eventually does.

gils said...

now its clear wats happening on dec 21 2012...its the end of financial world i guess :D and armageddon has already arrived..

zeno said...

Forget America economy meltdown.Time again and again you prove the blog is cool. Happy to be your reader where there are folks who enrich the thinking perspective with their comments. As Sandhya would say, you should take a bow sire :)

Ravi said...

So what-if these things happen by this Tuesday. Will the US Govt. shutdown as it was the case some months before. explain?

Anonymous said...

@Ravi, The government will not shutdown, but it will have to decide which bills it will not be paying. It could choose to stiff retirees who have paid into the Social Security retirement plan all their life, medical insurance for the elderly which is subsidized by the government, benefits and compensation to military families, government agencies and programs, or countries that have bought the debt.

I'll stand by my previous comments that a deal will get done. If it doesn't, heck, it will be damn interesting (and sad) to see who the government decides to stiff and what that says about our society. Regardless, in the future they might not even need to debate raising a debt ceiling because after this debacle no one may even want to buy US debt. Whatever happens, America has once again taken another step down from the world's throne.

In an age of globalization, that might not be a terrible thing. Countries being on more even footing. Sucks for us, but eventually, might be better for the world.

Ramesh said...

@Prats - Indeed. Coupled with the happenings in Europe, there is a serious risk of a second recession

@Hema - Ha Ha. Is Dhoom 3 really releasing ??

@Gils - Not armageddon, but clearly very difficulr times are ahead.

Ramesh said...

@Hopfrog - Enlightened comment as always. Yes, most lenders , including the institutions through which the US public lends to the government, have already downgraed US debt in their minds. But the problem with a formal downgrade by say S&P, is that interest rates have to rise. So far interest rates on US debt have not moved much. When they rise, this is going to make the Americn deficit worse. Capital and money markets have to fall. Even though stock markets have fallen in the last week, this is nowhere near what it should fall to, because the markets still believe that a deal will be done and that a downgrade won't happen. The danger is that when a downgrade happens, there will be correction across all markets and this may very well trigger a worldwide recession.

@ Ravi - As Hopfrog corectly states, a default will mean that the US government has to prioritise payments. But considering that they spend 40% more than what they receive, some deep cuts have to happen. Very likely, the US will place intrest payments on top - a default there would have disastrous consequences. Therefore they have to cut defence, social security and Medicare - the three big spending areas. They'll try and rotate the spend - one guy doesn't get his social security check this month but will get it next month while somebody else doesn't. But any which way this will lead to major social unrest in the US. Very very troubling times - lets hope it doesn't get to a situation where the debt ceiling is not raised.

Anonymous said...

"Even though stock markets have fallen in the last week, this is nowhere near what it should fall to"... I think this is saying a lot and may end up giving credence to my earlier comment on exactly why this deal will get done.

Excellent points about the interest rates, sadly, they will probably have to rise in the future in order to rollover future debt and attract buyers. Even if a deal is reached, so much damage to faith in US debt has been done.

Even though I do not think the Republicans are being sincere in their reasons (some of the biggest deficits have been under the Bushes and Reagan), I do like that the deficit is getting attention. We spend way more than we take in and there needs to be cuts.

The real issue, imho, is why won't the Republicans let the tax breaks for the wealthiest Americans and companies expire? The real problem in this country is the 'effective' tax rate. On the surface we have a progressive tax and people may falsely assume that the rich pay more than their fair share. However, anyone familiar with the tax code and the culture of write-offs knows that the wealthy are 'effectively' taxed at a lower rate, even though Warren Buffet may be the only with the guts to admit it. But that's a whole other debate.

Ramesh said...

@Hopfrog - I think too that a last minute deal is happening. Monday wee hours 1 AM looks like the Senate vote.

Totally agree with you on the taxes issue. America is by no means a high tax country and this arguement that tax increases mean job losses is bunkum. There's simply no way to bring sanity to America's deficit without spending cuts AND tax increases.Another topic ineed, and probably another post !

Vishal said...

Totally surprised to know this name... but yes, journalism is what makes even unknowns "the most famous"

On a serious note, they did reach the deal by employing a mix of both - an increase in ceiling limit and cuts in medicare and Pentagon program costs (what is Pentagon program?) How about cuts in defence and social security? Will they go for that?

So many exciting questions that come to my mind after following your blog in the first place and then the news. :) May I request few more posts on this topic please!

Ramesh said...

@Vishal - Yes they have come to some sort of arrangement, but it still has to pass through the divided House. Its an awful deal - all they have done is kicked the can further - a so called bipartisan committee (ha ha) will recommend future cuts. Pentagon cuts is defence. The public will vote out anybody who cuts Social Security and Medicare and the Right refuses wants tax increases. Fat chance of the debt going down in the next 10 years.

sandhya sriram said...

On behalf of all your fans and readers, i award you a blog rating of AAA ++++ to the power of infinity.

and there is no rich or poor, happy or moody soul on earth who can ever contest this rating - as this is 100% not fixed.

and it doesnt end here..

Given your recent crush on movies, you are also hereby awarded the continuing lifetime Oscar award for sustained contribution to world blogging community.

How i wish Gils and Zeno also come here and confer more awards on you.. i am sure they will do a much better job than me :-)

Martin said...

So your prediction came true, annoyingly. have a nice weekend!

Vishal said...

We saw a piece of catastrophe on Friday, now that S&P have gone ahead and downgraded the rating, more mayhem likely from Monday?

Ramesh said...

@Martin - Thanks for dropping by and leaving a comment. I really wish I was completely wrong !

@Vishal - Yes, there will be gyrations on Monday, but the more medium term outlook is very bleak.

Ramesh said...

@Sandhya - A more appropriate rating would be junk bond status, but I'll preen in the praise of the charming lady instead :)

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