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The S&P downgrades the entire planet to C-!

July 30, 2011

If the US congress doesn’t soon control the deficit, the S&P will downgrade the US and investors of the world will demand higher interest rates just like they’re doing for the European peripheral nations.  This is a pretty familiar refrain and we hear it every day throughout the mainstream media, but it’s actually a very strange idea.

Can we suppose that “investors”, i.e. those lucky few who hold the accumulated financial assets of the world, are able to price in and therefore eliminate all risk?  If, for example, there’s a 2 in 100 chance of default is it just a simple matter of increasing the interest rate by 2% to offset it?  While this can be done for the debt of a specific individual, corporation, or small nation, it’s really not a possible action when you’re dealing with society as a whole.  That’s because the only source of payment on financial assets is society as a whole and the likelihood of such payment is entirely dependent on its underlying welfare.  It makes little sense to say that wealth holders are in a position to increase their risk premiums on the entire planet due to S&P ratings or perceived excessive deficits when there’s no other planet in which to invest.  To think otherwise implies they’re in some god-like state hovering in the heavens above us, tasked only with the job of monitoring and assessing the risk of human action below.

Where on the planet is a truly safe investment?  China?  Japan?  Germany? Australia? Brazil?  All these nations have huge structural problems which, in the end, reflect the fundamental illogic of the entire global system.

All this talk of S&P downgrades is a distraction and is just plain stupid.  All of Earth could be downgraded to C- but if there’s no safer planet, interest rates will not go up.

From → Dynamics, Suppression

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