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Cattle Prods and Downgrade of US Credit Rating - Part 1

By Peter Ewart

Monday, August 08, 2011 03:46 AM

By Peter Ewart

 
On August 6, the Wall Street agency, Standard & Poor’s, stripped the U.S. of its Triple AAA long term credit rating by reducing it one level to AA+. Such a downgrade is unprecedented for the U.S., and is a reflection of the deepening economic and political turmoil that is gripping the world.
 
Why has this happened at this time? To answer that question, we first need to look at Standard & Poor’s itself. Standard & Poor’s is a Wall Street credit rating agency that has been in existence for over a hundred years. It is one of three agencies that dominate the credit rating industry (the other two being Moody’s and Fitch).
 
The function of these privately-owned credit rating agencies is to assign credit ratings to banks, corporations, nation states, local governments and other issuers of debt obligations, as well as to the debt instruments themselves. They are closely tied to and financed by the most powerful Wall Street and international banks such as Goldman Sachs, and, in practice, are an important mechanism of finance capital.
 
On the one hand, these rating agencies are used to sort out contradictions within the financial and corporate elite. On the other hand, they are a weapon wielded by the most powerful sections of finance capital against smaller and weaker financial and corporate entities. Most importantly, they are used as one of the means to enforce the domination of the most powerful countries, especially the U.S., against weaker ones, and impose the will of finance capital against the population of those countries. 
 
After Standard & Poor’s slashed Greece’s credit rating last Spring, Prime Minister George Papandreou complained that these agencies were “seeking to shape our destiny and determine the future of our children.” Interestingly enough, it was the previous Greek government that conspired with Goldman Sachs to conceal its financial problems and run up the huge debts that eventually triggered the crisis which caused the entire economy to come crashing down. It was left to Standard and Poor’s to come in and administer the “coup de grace” so to speak. Goldman Sachs has yet to be charged in the scandal that has brought this ancient country to its knees.
 
Despite the fact that their ratings can have catastrophic effects on the fate of entire governments and countries, none of the officials of these agencies are elected by public mandate, nor can their decisions be appealed. They are creatures of finance capital, pure and simple.
 
And these creatures have a highly controversial history. For example, although the U.S. monopoly Enron’s financial difficulties were well known to the Wall Street credit rating agencies for many months beforehand, Enron was still being classified as “investment grade” until just four days before it collapsed, causing tremendous damage to investors all over the U.S.
 
Even more damaging, during the sub-prime mortgage scandal, Standard & Poor’s, along with other agencies, gave triple AAA ratings to the toxic securities that were spread far and wide by the banks throughout the world, causing havoc everywhere and triggering the worst financial crisis since the Great Depression. A recent U.S. Congressional report has noted that “over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 [by Standard and Poor’s and other rating agencies] were downgraded to junk status.” As a result, some politicians and analysts have called for civil fraud and criminal charges to be brought against these agencies, but, to date, no such action has been taken.
 
All of which brings us back to the question: Why, at this particular time, has Standard & Poor’s persisted in downgrading the U.S. sovereign credit rating (even when the White House showed that the rating agency was off by $2 trillion in its calculations)? Is the U.S. really becoming a credit risk or is there something else going on here?
 
The fact of the matter is that the U.S. dollar is the world’s reserve currency. Unlike Greece and other countries, the U.S., as holder of the reserve currency, can simply print more money to cover its debts, which it has been doing for some time. Yes, in the long term, this will potentially cause more problems in terms of devaluation of the dollar, inflation, and so on. But the U.S. has that hammer, and it is by far the biggest one in the world.
 
To understand, why Standard & Poor’s, an agency of Wall Street finance capital, would downgrade the U.S. credit rating, it is necessary to examine the aims of these Wall Street banks and financial institutions themselves.
 
As has become common knowledge, the current crisis and chaos was, in large part, triggered by the corruption and criminality of U.S. financial institutions in concert with various foreign ones, especially in Europe. What was to be the solution to this crisis, at least as put forward by finance capital? It has two parts. First of all, even though U.S. and foreign finance capital were culpable in causing the crisis, that didn’t stop them from demanding massive, unprecedented bailouts from government, amounting to trillions of dollars from the public treasury.
 
Once that was accomplished, the second part came into play. And that was to use the financial crisis and the recent “debt ceiling” controversy to mount a further huge attack against the so-called “entitlement” programs of the U.S. population, including health, education, social security, pensions and other social services. 
 
Such is the context of Standard & Poor’s downgrading of the U.S. credit rating. In effect, this move is similar to that of a “cattle prod”. Finance capital wants to use this downgrading  to shock the American people into accepting massive cuts to health, education, social security and other “entitlements”. In addition, it also wants to punish and discredit the U.S. Congress for its mishandling of the “debt ceiling” crisis and the difficulty the administration and both political parties had in falling into lockstep with a “unified” solution that embodied the aims and agenda of Wall Street. 
 
But the American people are not cattle. They are becoming increasingly vocal about their demand for more control over their government and more control over their economy, and, in that respect, they are coming face to face with finance capital. Today, there is much political and economic confusion. But, make no mistake, a big battle is brewing, with not only the U.S. economy at stake, but also the American system of government itself.
 
(Stay tuned for Part 2 of “Cattle prods and downgrade of US credit rating”)
 
Peter Ewart is a columnist and writer based in Prince George, British Columbia, Canada. He can be reached at: peter.ewart@shaw.ca

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Sounds about right to me. I think when the bankers come calling for their IOU's QE3 and QE3.1 will soon follow as implemented by the privately controlled US Federal Reserve and hyperinflation financing finance will commence in full naked view for all to see... that's America's strategy at this point... Standard and Poor's is just the one delivering the message.

Obama the paid resident will do his part with his 'Super Congress' usurping the role of congress to set the budget that he will sign, and he will push hard for his 'infrastructure bank' for P3's he hopes to get through Congress as his now highest priority in partnership with the finance of Wall Street.

No mater how it ends it will be ugly for a lot of people. One can only hope that Wall Street and their financial alchemists are held to the principle of capitalism (ie the cost of failure) when its all said and done... to date that lack of accountability has been the problem, because we elect people who want to get along and not get out of line with the powers behind party politics. The system is entirely corrupted.
Is this what "End of Empire" looks like? I'm not certain, but I want to share an article that suggests that S&P warned the GOP to smarten up. From my read it appears that the Republicans were motivated by spiteful party politics. This was back in mid-July, with plenty of time to react appropriately.

http://www.politicususa.com/en/standard-poors-gop

In the meantime, I expect we will all be hooked up to the milking machine, unless of course we get up on our hind legs...
In regards to S & P ,it is an opinion.
Maybe the US government didn't pay them enough.
Check out the documentary movie called
"Inside Job".
This will explain everything.
These are some of the most licid comments I have read about this current economic crisis. Thank you Peter!
Eagleone posted (on the previous Peter Ewart article thread)something that I believe is worth responding to here, since the time for comments there has expired.

Eagle said, "I pretty much agree with all that was said above other than Socredible's conditions for totalitarianism... I think things can be done to mitigate that possibility and don't see how government control of the monetary system would lead to totalitarianism... "

First though, to be clear on this and fair to Eagle, I'd like to ask him just what he means by "government control of the monetary system ?"

Does he propose that there be greater oversight and regulation of what Banks are allowed to do in regards to whom they make loans?

Like the government insisting, for instance, that someone wanting to take out a mortgage to purchase a new house have some stipulated amount of the purchase price in savings as a down payment before they can get a loan for the balance? Or that the term of all new mortgages written be limited to a maximum of, say, 20 years? Or that the (Canadian) Banks be restored to the necessity of maintaining a certain 'reserve ratio' of loans to deposits based again on their RESERVES, and not as now, their 'capital'?

Or does Eagle have something else a little more far reaching in mind? Like, say, the government issuing ALL new 'money', in the form of Treasury Notes, for instance, to pay for anything it wants to buy? That rather than go through the pretext that it has to 'borrow' what it spends from the Bank of Canada, or the private Banks, or you and I, it just 'prints up some money' and goes to it.

Or perhaps insisting that all the chartered Banks be nationalised. Owned by the government.

Or perhaps that the power to 'create' the credit which acts the same way as currency in the overwhelming majority of modern transactions, (which is what the Banks actually do whenever THEY lend, or spend), be removed from them. And it be centralised in the 'government' instead, from whom the Banks would have to borrow all the 'money' they lend or spend?

Just what is it you have in mind, Eagle? I'd really like to know.

For in large measure the government, as regards the first part of what I wrote above already DOES have control over the monetary system. It can insist Banks only grant new mortgage loans to those with a specified down payment. It can limit the term of those loans. It can do a whole host of things, including mandating the maximum amount of interest any Bank can charge on any loan. Which was set at a maximum of 6% for many years. And these things are not what I would call 'totalitarian', though our Bankers might take a different view of that.

But when it comes to some of the other ways some people seem to think the government could do to "control the monetary system", many of them do not realise that they very definitely ARE the precursors to totalitarianism.

Where those in charge in government, REALLY in charge ~ not the people we elect, who, by and large do not have the technical ability to "administer" anything ~ have an absolute monopoly control of everything that can be done that involves 'credit' and 'money'. Do you REALLY want THAT, Eagle? How 'free' will 'free enterprise' be when there's only ONE source of the funding it needs available to it?

Lets not make the situation worse than it already is through our misplaced good intentions in making it better. We CAN most certainly make it better, but first we have to understand what's REALLY wrong. And most are NOT EVEN WILLING (yet) to look in the right place.
Whats really gone wrong Socredible is that we no longer have the accountability of failure in our financial system. All the innovation of recent decades is about skirting accountability for bad financial decisions and passing the buck to others for bad decisions. Everybody in the financial world is now too big to fail and we use our tax dollars to bail them out when they provide no real value that wasn't stolen from others.

I stand for the so called main street, and the middle class working person, and their free enterprise opportunity in small business. For that to work the government has to have some rules and regulations that protect them from monopoly capitalism that uses the lowest common denominator to debt enable them to undermine the free enterprise system and then undermine the foundations of our economy.

I think governments and banks need to be separate. I think banks have no place in financing government and vice versa governments have no place in financing or bailing out banks. Banks should be private and deal with enabling the free enterprise system by serving individuals and corporations... and when they fail in their lending practices they should be accountable by going out of business and having their business picked up by other banks (or credit unions) that were more conservative and managed their accounts more prudently.

If we had financial accountability during the dot.com fiasco, rather than a government backed real estate bubble, then most people today would still have their value in their pensions and their home and we would have no where near the problems we have today. It would have hurt more at the time and yes some people would have lost everything, as they should when they gamble, but on the whole the man who works for a living and plays by the rules would have not had his future mortgaged to bail out those that played fast and loose with the system. Peter is right in that our collective future was mortgaged to finance those that created the problems we face today... and now the people that worked hard and played by the rules are the ones asked to take the cuts to cover the criminality that took place.

Our politicians are all to dumb and ignorant to realize the implications of their political ideological blinders.

I think governments should operate under a maximum three year balanced budget. Over any three year period the books should by law have to balance so that each generation is fiscally responsible for paying their own way and not downloading their problems to future generations... it should be a charter right for those not yet in control of government spending (ie those still in the womb so to speak).

As for currency... some will always be created by the banks through lending... some tightening of the ratios could be in order (ie 20:1 or even 60:1 for gambling purposes is criminal)... and they should go under if they run into problems... let the credit union take over if need be it... keeping power distributed in a banking free enterprise world where bankdom empire doesn't accumulate for those most predisposed to criminal alchemy.

But when it comes to government... there should be no connection between government and banks for financing essential fiscal operating budgets... and this currency should be the currency that is created simply by printing more currency to cover the added value of those government services in the economy. The government would have no debts passed down to the next generation thus ensuring and enabling generational free enterprise opportunities. The tax code could be all but eliminated creating a 15% efficiency in the Canadian economy. The government would be accountable in its efforts through real time inflation which they could still target to the 2-3% range on goods and services (currency may inflate by 10-15%) limiting their ability to create new currency.

If the government has a large wish list then they would have to raise a specific tax to cover a specific project and not just go to the nearest pool of cash to raid for their pet projects. If an individual or a corporation requires debt they would go to the private banks as they do today.

The main thing is governments wouldn't be able to print money like they do today through fiscal deficits to finance pet projects and political actors bail out 'stimulus' hand outs, and then passing the costs down the line to another tax payer in another day far down the road. Finance relating to government and governments role in creating currency would be restricted to the present here and now with each generation paying their own way and not downloading the costs of their good times to some far off generation down the road as is common practice today.

I don't see it as totalitarianism or anything leading to that... I see todays system as one that enables totalitarianism by the bankster enabled politicians.

If you have a strong middle class... if you have a strong free enterprise oriented banking system... if you have accountability in finance... if you have opportunity to make income without a 3000 page small print tax code... if you have transparency in government spending in real time... then their is too much light, to much awareness in real time, and to much freedom for totalitarianism to ever get a toe in the door... our children and their children will then continue to live in a free country.

AIMHO
Well, Eagle, we do have somewhat differing views on the role of government and the way it should operate a money system. Yours are ones held by a variety of modern monetary reformers,i.e., that the government should just spend money into existence to meet the costs of doing all the things government does. By simply printing money.

In my view this won't do anything towards solving the real problems we are facing financially today. For what the government would be doing by going this route is not really materially different than what it's doing when it borrows the same amount of money from any Bank to spend for the same purposes.

And would be a whole lot more cumbersome, since currency (cash and coin) now forms only a miniscule and declining part of overall business transactions involving the payment of money today.

Regardless, the fact remains that virtually ALL money currently issued is 'costed' into whatever it's being spent on to PRODUCE those goods or services. And these Costs have to be recovered and cancelled through either Taxes or Prices as those goods and services are CONSUMED.

The provision of goods and services by the government is no different than the provision of goods and services by anyone else.

Even if it prints the money to pay for something instead of borrowing it there is still a 'liability', or debt, created. The difference being that a Treasury Note is a liability of the government to the bearer, whereas a bank loan is a liability of the government to the Bank.

In my view, and those of the Social Credit Movement, our problems today stem from the FACT that money issued as the 'costs' of production is taken back and cancelled in 'prices' (and 'taxes') at a FASTER rate than the goods and services this money has enabled to be produced are actually consumed.

We end up with a growing body of goods with an overall 'price value' in money on them, but no equivalent overall amount of 'money' in existence that can meet that price. (Unless someone 'borrows' some more ~ which is then impossible, in its totality, to ever pay back. This process is cumulative. Until, ergo, we have the current 'debt crisis' we're caught up in.)

We think that the government should statistically track the difference, and periodically issue new money debt free to each citizen to correct the ongoing amount of the deficiency.

The government could do this several ways, but fundamentally one of the easiest ways to do it would be to "compensate" consumers at the point of retail sale a percentage of what they're normally charged on their purchases.

There is no taxation necessary to fund the rebates consumers would be paid. For we are not creating any 'costs' in issuing money this way; rather only enabling previously incurred costs to be fully liquidated. It's just like an 'accounting correction', which is something commonplace in every business to better make the 'figures' fit the actual 'facts'. Only applied on "the Nation's business", as a whole.

Nor is there any inflation involved, since we are issuing new credit to LOWER prices to consumers. Not as we get whenever government spends money into circulation for public works, etc., and consumer prices invariably rise as a result.

When our financial system has been made fully 'self-liquidating' again, and maintained that way, a "pay as you go" funding of government provided services is again possible.