Popes of the market curse the USA's poor

Submitted by Matthew on 4 August, 2011 - 11:01

Standard and Poor’s, Fitch, and Moody’s have got their way. Three relatively small New York finance companies have strong-armed the mighty US government into big cuts in social spending.

Standard and Poor’s, Fitch, and Moody’s are the “ratings agencies” which had threatened to mark down the US government’s IOUs (bonds) to less than 100% good-as-gold. Their threat was so powerful that it pulled into line both the right-wing “Tea Party” Republicans who wanted a financial panic so that they could force even bigger social cuts, and Obama and the Democrats, who preferred smaller cuts and reversal of the tax cuts for the rich brought in by George W Bush.

The ratings agencies have intervened powerfully in the eurozone crisis, too. Greek government IOUs (bonds) have had no chance of being rated good-as-gold, but the European Union, the European Central Bank and the eurozone governments labourered hard to avoid having the IOUs labelled “in default” (outright rubbish).

Why are Standard and Poor’s, Fitch, and Moody’s so powerful?

Because, in capitalism, the market is god. The market god sometimes speaks more directly, though just as brutally, as the gods of old religions. Sometimes, as when it’s a matter of the trustworthiness of IOUs, the market god needs Popes, Ayatollahs, Bishops, or High Priests to speak for it.

For IOUs, the ratings agencies serve as the Popes of the market god. As with the Pope in the Catholic Church, so with the ratings agencies in the Market Church (capitalism) there is a public convention to see them as infallible even though privately everyone knows they are human.

Like a Pope preaching anathema to infidels after he has been found out collaborating with the Nazis or conniving in Vatican financial misdeeds, the ratings agencies are revered now only three years after they were shown up in 2008 as having rated lots of bank IOUs good-as-gold when in fact they were dodgy. The agencies’ mistakes were a big factor in the 2008 crash.

The governments agree to treat the ratings agencies as the voice of the market god because they think that agreed fiction is necessary for “market discipline” to work — just as an agreement to hear the Pope as inspired by god is necessary for the Catholic Church to work.

Actually, over $5 trillion of the US government’s $14.3 trillion IOUs are “I-owe-me”s — debts owed to other bits of the USA’s public authorities, the Federal Reserve, the USA’s social security fund, and so on. There was no real problem about increasing the USA’s legal debt limit.

The debt limit row gave the ratings agencies the chance to step in as the voice of the market god, and to enforce social cuts for the poor in a USA where inequality has already been spiralling for decades.

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