FITCH’S 180 DEGREE TURN ON ITS OUTLOOK FOR THE U.S. MAKES ITS CREDIBILITY QUESTIONABLE

The article published by CNBC highlighted that in February, Fitch warned that Trump posed a danger to global economic stability. In April, the ratings agency says the president’s pro-growth agenda would push GDP more than expected. Concerns linger over protectionism and debt, but the report was a major change from the previous warnings.

CNBC indicates that just two months ago, Fitch Ratings viewed President Donald Trump as a threat to economic stability — not only in the United States, but for the world. Suddenly, the firm reaffirmed the AAA credit rating for the U.S. and rose its outlook for GDP growth. According to Fitch, the U.S. to grow at a 2.3% in 2017 and 2.6% in 2018.

According to Fitch the new administration’s focus on deregulation and tax cuts has spurred higher business confidence and would be positive for growth if carried through. In Fitch’s view tax cuts are unlikely to generate a lasting and substantial boost to growth.

I think it is a sign that Donald Trump’s dramatic change of opinion could be contagious. I would think that Fitch is the first victim of a new virus that threatens us with global pandemic. The firm’s 180 degree turn is colourful illustration that my suspicion could be correct.

Joking aside, I would really want to understand how on Earth one of the leading rating agency revised its analysis to the extend that it does not appear to be a revision but rather issuance of a completely different report.

I would really want to know how the firm which suppose to have the best of the best analysts made such a dramatic change in its assessment. We are not talking about some minor issues which could be missed out because the focus was on a bigger picture. We also do not talk about some minor revisions of important issues as well. It happens. We all are humans and we make mistakes.

However. 180 degree turn on the analysis regarding the forecast for #1 world economy cannot be just a mistake. I also have hard time to imagine that it could be a result of negligence. This is just too big. Because drastic revision based on deregulation and tax cuts is not possible. Whatever justification Fitch has produced, it does not convince me whatsoever. 

The reason for my disagreement is based on well known fact that the U.S. economy does not exist in isolation from the rest of the world. Moreover, due to globalisation process the world’s economies are vastly interconnected, the U.S. included. It seems that this fact is ignored.

It is also mystery to me how was it possible for Fitch’s analysts to miss out that tax cuts would create high probability factor for occurance of negative consequences causing inevitable impact on the U.S. budget. Since such potential has good chance to materialise, it is impossible not to predict further increase of the U.S. debt, possibly making it unsustainable and irreversibly damaging reputation of the U.S. Dollar as the world currency.  

I do not understand how Fitch could not see that deregulation, including the energy sector, would lead to the boost of crude oil production crashing the oil price again. It was not possible to miss out that such crash would possibly be followed by the next banking crisis.

Because due to mass bankruptcies of oil and gas companies resulting rapidly rising unemployment and crashing demand, banks will have to write off huge amount of bad debts. Whether the U.S. government is in a position to afford another bail out is rather questionable.

Besides,  due to Trump’s unpredictability, wide rage if uncertainties and rising political tension worldwide would likely to cause unfavourable conditions for business activities. 

The above is only general points. I do not go into details.

If “revision” took place because of unacceptable negligence, Fitch shall conduct full investigation internally and release its findings to the public. However, if something else is behind it, other than negligence, then it would be appropriate to investigate Fitch’s decision to drastically change its view.

Taking into account the status of this firm, millions of investors would follow its analysis. Mislead by its report, millions of investors would have a good chance to lose their money. Perhaps some would lose their life savings. 

Therefore, if something else stands behind Fitch’s decision, it shall be investigated in order to protect public interest.

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