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Here is the formula of calculating. The system is opened. It will be developed with time... Number 8 in the numerator means the number of factors used in calculation. If another factor added, the number will become 9 and up. In any of the factors is removed, the number will be 7 and down.
r = 8/{[1+(debt/GDP)] + [1+10*(accumulated deficit for last 5 years/budget income for last 5 years)] + [1 + (10/years since last default)] + [1+accumulated of last 5 years inflation] + [1+(budget expences/GDP)] + [1+ 10* (trade deficit/GDP)] + [1+political factor] + [1+crisis factor]}
where:
r - rating
debt, GDP, deficit, budget expences, trade deficit and budget income - nominal statistic values inflation - measured as part of 1. I.e. 3% inflation will mean 0,03 in formula political factor:
0 - stable democracy with high educated voters and high living standart
0,1 - democracy for at least 50 years
0,2 - young democracy (less than 50 years), high corrupted democracy
0,3 - authoritarian rule, oligarchy
0,4 - totalitarian state, dictatorship
0,5 - military aggressive regime
crisis factor:
0 - no wars in last 100 years, no current 3rd party war closer than 1000 km from borders, no current or highly probable disasters
0,1 - war in last 100 years or current 3rd party war closer than 1000 km or probable disaster
0,2 - 3rd party war closer than 500 km
0,3 - 3rd party war at the borders
0,4 - involved in current war
0,5 - war at home territory, revolution, disaster
Calculation of the rating: The formula produces a number between 0 and 1. In a very rare situation it can produce a number higher that 1. Multiplied by 100, it will produce a percentage value.
The credit rating responds to the value:
Investment grades:
0,90+ (90%+) is AAA
0,85+ (85%+) is AA
0,80+ (80%+) is A
0,75+ (75%+) is BBB
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Non-investment speculative grades:
0,70+ (70%+) is BB
0,65+ (65%+) is B
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Higly speculative:
0,60+ (60%+) is CCC
0,55+ (55%+) is CC
0,50+ (50%+) is C
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Defaulted:
less than 0,50 (50%-) is D ------------------------------------------------------
The system is automated, non dependent on political pressure or political correctness.
For instance, calculated by this formula, the credit score of Switzerland is:
debt/GDB is 38%
deficit/revenue is negative due to surplus of 2,7% on income
no defaults in new history
accumulated inflation is 2,5%, in formula - 0,025
political factor is 0
crisis factor is 0
OVERALL CREDIT SCORE: 0,98 (98%). This responds to AAA.
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The credit score of USA will be:
debt/GDB is 96%
deficit/revenue is about 50%
no defaults in new history
accumulated inflation is 11%, in formula - 0,11
political factor is 0
crisis factor is 0,4 (involved in current war)
OVERALL CREDIT SCORE: 0,751 (75,1%). This responds to BBB.
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Very interesting - the rating of Greece in 2009, calculated by this formula (based on official statistics that after that was proven as optimistically manipulated):
debt/GDB is 110%
deficit/revenue is about 15%
last default ended 1964 so it is 45 years since then - in formula - 0,22
accumulated inflation is 14%, in formula - 0,14
political factor is 0,2
crisis factor is 0,4 (participation in Afghanistan war + war at the borders -> Israel, Middle East, North Cyprus occupation by Turkey)
OVERALL CREDIT SCORE: 0,666 (66,6%). This responds to B.
At the same time the leading Credit Rating Agenicies eveluated Greece as A. The difference is enormous. "A" is a good investment grade and "B" is a speculative grade. So as we can see by following events, Greece was far away from a stable investment destination.
Therefore the formula can calculate a more reliable result even based on manipulated data. If we recalculate on real data the grade would be even lower.
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