The term downgrades have been a popular phenomenon in the last year or so. The S&P’s downgrade of the US debt from AAA to AA+ was the most notable in the recent memory. But one would certainly not know if Europe is in crisis on Moodys’ threat to downgrade nearly 100 global banks today. Despite Moody’s threat to downgrade bank’s credit worthiness, markets do not seem to care about it anymore.

The year 2011 witnessed a record number of downgrades issued to just about every notable sovereign country and major banks. Yet, the world is running their everyday errands and not a single bank or country has defaulted. Granted, banks and countries have avoided defaults because of massive central bank or government interventions such as what we saw with Greece or with the great bank bailout of 2009. However, it is clear that credit downgrades have certainly lost their ability to sway investors and politicians alike from really changing their ways and fixing their issues at hand.

The great downgrade of the USA’s AAA credit rating by Standard & Poor’s last August is likely the most notable downgrade in the recent memory, as the world’s reserve currency and reserve central bank received the axe in an effort to prod policymakers to compromise and reel in enormous deficits. As seen from the market movements, the AAA to AA+ move triggered a massive sell-off in the markets. However the fact remains that the US Dollar is still the world’s reserve currency, and the bond holders continue to buy US Treasury bonds at record low rates.

Furthermore, the slide of European banks and European country downgrades by S&P, Moody’s and Fitch have done nothing to urge policymakers into solving the European debt crisis; if anything the only factors which have produced policy makers to move is the threat of the default itself. And here we are in the midst with an unresolved Greek crisis, and even more unresolved debt situations including the likes of Spain, Italy, Portugal and France. All the countries mentioned in the preceding sentence have lost their coveted AAA status.

It appears that credit downgrades by the likes of S&P, Moody’s and Fitch simply do not hold as much clout as they used to, as major banks and central banks continue to find ways to fund themselves despite the negative outlook or reduced credit worthiness. The investors would take their recent downgrades more seriously as evidenced by the bulls in charge despite today’s threatened downgrades. One might say that the credit agencies have started to cry “wolf wolf” many times. A time may come when the shout would not be deemed as a cautious tone anymore!

Have a great weekend everyone!