The downgrading of the credit rating of America by Standard and Poor’s has come as a major shock and surprise to the common people across the globe, chiefly for the reason that this is the first time they are realising that there is something called credit rating for countries.
Now apart from understanding what the heck ‘AAA’ is, people have to figure out what the downgrading of this to ‘AA ‘entails (The censor certificate says: the American economy is no longer sexy). Frankly, this is tough on average citizens in the world, because most normal people cannot grapple with numbers and calculations involving more than two digits. (Case in point: Our insurance premium. None of us has any earthly idea how it’s arrived at. But by the look of it, insurance companies employ numerologists to come up with the numbers for premiums).
Anyway, to dispel all the grey areas and get a clear picture on what exactly is happening to the world’s economy, and what it means to India, here we present a primer in a Q and A format. The whole idea of this exercise is to kill time, which, we suppose, is also the idea why economists throw up these numbers and ratings in the first place.
Q: What is this credit-rating for countries and how is it calculated?
Ans: The question is wrong. The right question is: Why is credit-rating done at all for countries?
Q: Okay, why credit-rating for countries?
Ans: Because economists have nothing better to do. Also, they have to be seen doing something so that they can collect their salaries, which needless to say, are important to their credit-rating.
Q: Which are the institutions that compile this?
Ans: The two names that readily come to mind are Standard & Poor’s, Moody’s. Yes, as is evident, to compile statistics of global gravitas, the chief qualification is a totally superfluous and pointless apostrophe at the end of the names. Another well-known and respected international rating agency, picked on the basis of a classy apostrophe in its name, is — drum roll — Crank’s Corner.
Q: What are the factors that impinge on the credit-rating of a country? And how does one collate them?
Ans: The first is obviously its GDP. In other words, Gross Domestic Product, which contrary to popular belief, does not refer to anything that Shiney Ahuja allegedly attempted. The GDP is arrived at by the advanced scientific method of putting a percentage symbol (Pro-tip: you can find it atop ‘5’ on a standard computer keyboard) besides any random number (preferably a single-digit one). But nobody ever cross-checks this.
Plus, we think inflation is also a factor. Inflation is verily the key statistical data that the economists painstakingly and scientifically compute, which is otherwise easily available to the general public. Without the benefit of the inflation numbers calculated by highly experienced and skilled economists, common people would have to work out themselves whether the prices of the goods they are anyway buying have risen or not.
Q: Name the things that have a bearing on stock market prices?
Ans: Historically, we have seen share prices being affected by El Nino effect, Middle-East Peace talks, earthquake in Japan, Clinton’s romp with Lewinsky, Lady Gaga’s wardrobe malfunction. Ok, the last one is an exaggeration. But as you can see, things other than companies’ actual performance are more important for the stock market. Remember the rule to investing in a company’s shares and the logic in picking Harbhajan Singh as the spearhead of the bowling attack is the same: Believe in your luck.
Q: Is there anything more random and unpredictable than the stock markets?
Ans: Yes. Sreesanth.
Q: Coming back to America, what happens if its credit-rating is further downgraded in the future and its debt increases?
Ans: Credit agents may come and take over the White House, seize Air Force One (last heard 25 months EMI on it are still pending) and Obama and his team may have to operate from a four-room office in Pennsylvania. By the looks of it, America can soon be bought over through some loose change lying around the basement of Padmanabhaswamy temple.
Q: Is that some kind of joke, huh?
Ans: We think so. But who knows this may turn out real?
Q: Closer home, what ramifications will the economic churning elsewhere have on India?
Ans: Pranab Mukherjee has already said that ‘the situation is a bit worrisome, but Indians need not worry’. Economists and financial experts specialise in such language. If this doesn’t worry you, I don’t know what will.
Q: Since Indians traditionally invest in a lot of gold, are we on a stronger foundation, now that the metal is zooming to a new high in value?
Ans: *Insert a Bappi Lahiri joke here*
Q: Let’s get this straight and final: As a general public, when should a downgrading exercise actually start to worry me?
Ans: When the industry that offers XXX, suddenly shifts to XX stuff. That’s pure ‘adult-ration’ for you.