THE US RATING DOWNGRADE

WHY DOES THE WORLD CARE ABOUT S&P WHEN IT DESERVES A FFF RATING?

The world markets seem to be thrown into a tizzy by the recent downgrade from AAA of the United States. Newspapers were full of stories yesterday about the impact on international markets and the increased pessimism about the world economy following the downgrade of the US's debt rating. This is strange. The world markets are reacting thus to a 'rating' downgrade by Standard & Poor to a AA status, which is hardly bad.

The US has been living 'beyond its means' for decades now, ever since the Reaganite 'revolution' of killing taxes and social programs, except the biggest 'high-society' program that has been animating the US economy for decades - the high-tech, mega-dollar, 'defense' industry. Many writers including Bacevich, Chalmers-Johnson and the 'leftist' Chomsky have written about how the 'permanent war-economy' has been kept going since the Second World War which had left the US the biggest industrial power by far.

(This 'economy' - the greatest American tribute to Keynes with the significant difference that the beneficiaries of this perverted Keynesianism are the super-rich and their collaborators in the politico-bureaucratic-industrial-military complex - has reached all-time heights under Obama, and is now at $ 2 trillion/year, making Washington D.C. the world's most 'corrupt, captivating and corrupting' place on Earth, as well as the world's greatest haven for Corpo-Rat lobbyists.)

But that lasted only a few decades and by the end of the 20th century much industry had been won by Japan and Germany and then shuffled off to places like Mexico and most of all, China, by 'capitalists' whose loyalty is to the rate of return their capital earns, not to any body-politic.

The recent fight to raise the American debt ceiling also centered on the same issues - the super-rich apparently deserving no tax increases and the increasingly desperate poor and the disappearing middle-class deserving to lose even more of their greatly diminished social programs, at least so far as the Republicans were concerned.

As James Galbraith has written, the US has become a 'Predator State', in which corporate predators have been given full license (especially under the Bush/Cheney regime) to engage in wholescale 'looting' of the public institutions of the Rooseveltian New Deal - health care, social security, housing finance, education, and so on, with the additional benefit of almost complete freedom from regulatory oversight.

Hence Enron and its rape of California on electricity (while Lay's buddy appointed head of the energy regulatory commission by 'Dubya' 'fiddled' on), Blackwater and the obscene privatisation (mercenarism) of military activities, the subprime fraud and the resulting Great Recession, HMOs which are really health mercenary organisations, attempts to privatize social security and thereby put pensions in the hands of mutual funds, and so on.....

Obama's attempt to bring universal health-care to the tens of millions who had no access had led to his being portrayed as a Hitler, and a crippling of his health-care plan, and ongoing effort to scuttle it, even though the plan fails to deliver what the majority of Americans want - a single-payer government funded plan, which is what virtually every developed Western nation successfully has. The insurance companies and HMOs who live rapaciously off this multi-trillion dollar industry simply will not allow such a colossal prize to slip from their fingers, as their profits matter more than the health of Americans - whether those Americans have coverage or as in nearly 50 million cases, do not.

With all this as background, the US arguably deserved a rating downgrade far below AA. But its status as the world's leading military power (as it spends more on weapons of mass murder than the rest of the planet combined) and the continuing status of the dollar as the world's reserve currency as well as the need by various countries who hold hundreds of billions of dollars (China, India, and others) in foreign currency reserves to protect those holdings, continue to prevent the US dollar from crashing.

The dollar deserves to crash (hence the huge increase in gold price) but too many countries who hold dollars would also lose if it did, along with the generalised crisis the toppling of the world's reserve currency would have on everyone. As for the chances of 'default' which the rating downgrade itself addresses, this is unlikely, as Greenspan said on TV - the US would simply continue to 'print money' to pay off its debts...

(The 'Federal Reserve' is neither 'federal' (it is a private bank which simply creates new dollars from thin air - entries in electronic ledgers - for which it earns interest that must be paid) nor is there a reserve for the electronically 'printed' new money it has been consistently creating to pump up bubbles. It is accused of being behind many of the world's extended conflicts, with the cabal of super-rich bankers behind it profiteering from those wars....)

Those factors should have caused far greater tremors in world markets than the S&P downgrade. Apparently people have forgotten that S&P, along with Fitch and Moody's, made billions of dollars during the years leading up to the sub-prime mortgage crisis, providing AAA imprimaturs on trillions of dollars of junk securities. When hauled before the US Senate (see the excellent documentary 'Inside Job') their response (with no exceptions) was that their ratings were merely 'opinions' that investors could not rely upon as a guide to investment! This testimony alone should have led to regulation to bring these ratings agencies to heel, but it didn't. No prosecutions resulted either of the ratings agencies themselves or the investment banks that sold those junk securities and then 'bet' against them.

So to put it plainly - what is S&P's credibility in the downgrade it has given? Shouldn't world markets treat them as mere 'opinions', not to be taken seriously as guides to investment? Or to put it differently, shouldn't the markets be giving S&P, Moody's and Fitch, a FFF rating for their starring role in the creation of the greatest economic crisis since the Great Depression?