Part II: Credit ratings agencies, corporate blackmail & foreign loans

The following is Part II of ‘What If Every Government Paid Off Its National Debt?’, an edited excerpt of my upcoming book whose title has changed so many different times now, I don’t even know if it’s worth mentioning. Right now I’m thinking: ‘The Big Lie – How The World Really Doesn’t Work’.

What the hell do credit ratings agencies have to do with monetary sovereign government debt?

“But we’ll lose our AAA credit rating” is the go-to response to those — like me — who worry less about the deficit and more about the actual state of the economy. But what the hell do credit ratings agencies have to do with sovereign debt?

As the fiction goes, if credit agencies downgrade the national credit rating, the government will go broke because as a result of higher interest rates. “The credit ratings fear-mongering isn’t science,” says economist, Ellis Winningham. “It isn’t even pseudo-science; it’s entertainment. It is a grand fiction. It’s a scary story told around a campfire for fun. It’s a Stephen King novel. It’s “The Great Pumpkin Charlie Brown”; it’s “Night of the Living Dead”; it’s “World War Z”; It’s “Friday the 13th Part 666” — it’s entertainment.”

First of all — as I have mentioned many times previously — a government which issues its own currency (a monetary sovereign) cannot run out of money. The US government, the Australian government, The UK, Canada, China, Japan etc do not have to borrow to fund themselves, because they are not borrowing from other countries, but lending to themselves in their own denominated currencies. Repaying the debt is simply a matter of moving money from the savings account at the central bank to chequing and vice versa.

Governments are operationally unaffected by credit ratings precisely because they print their own currency. Currency users — that’s us — can be affected precisely because we do not issue our own currency. Users can run out of money and go into real debt because they cannot simply print more money to cover their costs. Governments on the other hand — at least governments that issue its own currency — cannot.

Credit ratings agencies are the bully pulpit of the private sector trying to hold a government which cannot be threatened over a barrel and should be outlawed.