In 1989 Moody’s changed the credit rating of Brazil to BB- unjustly, causing enormous suffering and strife to the Brazilian citizen and government.
Moody’s and S&P, and most Americans, have yet to realize the concept of Real Interest rates, rather than Nominal Interest rates, which is an incomplete pricing method. It misleads people into thinking that they are receiving significantly more "interest" than they really are. In Brazil that would be a crime of false advertising.
During the last twenty years, Brazil always had the ability to pay the Real Interest rate of its loans, plus an extra for amortization. It never justified the rating of "questionable ability to pay".
Now a Brazilian Rating Company has used the reason against the US Treasuries. Because they are not indexed to inflation "there is a questionable doubt that investor’s will receive the true value of their investment, due to future US inflation".
For 30 year treasuries, where a 4% inflation will erode principal by 50% at least, a double CC would have been more justified. But that would have seemed too much of a penalty.
But it is about time Americans realize that Nominal Interest Rates is a form of false advertising, bad pricing scheme, since part of that interest is inflation, not interest. And inflation is not income by any means.
That is one the reason’s of the sub-prime crisis. Forcing poor people to pay "inflated interest rates" in the beginning of their life cycle, and paying totally eroded principal 30 years down the line.
Meanwhile inflation in Brazil is under control and the country today features the highest real interest rate in the world which makes it a very interesting market for investments in fixed income.
