As an indication of the rising threat to the USA’s monopolistic control over the global financial system, a less momentous, but also significant announcement, was made on the same day in January 2015 as the European Central Bank’s decision to embark on its EU shattering programme of Quantitative Easing. This announcement came from Hong Kong – at the opposite end of the Eurasian landmass. This was that one of the key weapons in America’s armoury for global domination of financial markets was, for the first time, being scheduled to face competition.
Until now, 95% of all credit ratings, made of both nation states and corporations around the globe, are conducted by one or the other of the USA’s three big rating agencies, Moody’s, Standard & Poor’s (S & P) and Fitch Ratings. Foreign governments that borrow US dollars (the reserve currency on which, ever since Bretton Woods in 1944, the global financial structure has been founded) live in permanent fear, lest their actions or failures, either political or economic, lead to a downgrade in their credit ratings by ‘the big three. ’ Such a downgrade can force rapid and crippling rate increases to be levied on their debts.
An example of the exercise of this power came in 2010 when Greece’s state indebtedness, which was on the verge of being bailed out by the EU, was suddenly downgraded by three full levels to ‘Junk” status. Pension funds around the world, liquidated their Greek state bonds and the Greek central bank was soon paying in excess of 10% on its borrowings. Money flowed out of the EU and into the USA and the Euro crisis started its rapid escalation.
A similar exit of capital from Europe into the USA has followed on the recently engineered subversion of the imperfect, but legitimately elected Ukrainian government. A largely reluctant and divided EU was strong-armed into imposing sanctions on Russia. On cue, in December 2014, S & P announced that there was a 50% chance that Russian state debt will be rated as junk within the next ninety days. True to its brilliant forecasting, on 26th January, S & P downgraded it to “Junk.”
Last year, Russia’s reserves stood at $515+ billion, alongside the USA’s reserve of $150 billion and China’s $3.8 trillion of reserves. Admittedly, Russia’s reserves are now bleeding rapidly and the USA’s reserves are growing from both the Russian and EU capital, which the USA has deliberately set in flight. Nevertheless, given the lines of credit Russia has with China, such a rating would appear as remote from reality as the triple AAA rating the same agencies were giving Enron in 2001, just four months before it entered into the biggest corporate bankruptcy in history with $11 billion in debts. https://world.bymap.org/FinancialReserves.html
If one takes sovereign debt into account, last year, The Economist had Russia’s sovereign debt at $220 billion, China’s at $1.7 trillion and the USA’s at $14 trillion! The Russian debt stands at $1,645 per capita, while American debt stands at $56,952 per capita! National debts https://www.economist.com/content/global_debt_clock Put another way, though the USA’s GDP is approx. eight times greater than Russia’s, its indebtedness is over seventy-six times greater than Russia’s. One might well ask, exactly whose credit rating should be downgraded?!
Despite the reality in central bank vaults, in harmony with US instigated sanctions, this ratings weaponry in Washington’s hands will continue to be used to manipulate the global financial markets and drain capital away from Russia and into safe haven USA. Washington would appear to be hoping to destabilise the Russian government and force it into sovereign default.
On 22nd of January this year a communique was issued with the implicit support of both the Chinese and Russian governments. A new, privately owned, Asian-based, credit rating agency, Universal Credit Rating Group (UCRG) headquartered in Hong Kong, will be opening for business later this year, with the publicly stated, long-term intention of undermining the American monopoly. UCRG will be composed of three equal partners, China’s Dagong Credit Rating Agency, Russia’s RusRating and a small, but well regarded independent US agency, Egan-Jones Rating Company (EJR.) (While the big three were all giving Enron triple A’s, EJR was well ahead of the crowd in declaring a downgrade.) https://www.institutionalinvestor.com/Article/3251379/Credit-Rating-Upstart-UCRG-Takes-Aim-at-Big-Three.html#.VMMZCSytHLU
This is yet another step in the direction of a ‘reset’ of the global financial system, in which the post WWII American dominance over global financial institutions is being challenged. This process reflects the growing power of Asian and other developing economies, and their frustration at America’s aggressive financial bullying and cynical manipulation of their currencies to Wall Street’s advantage.
Other aspects of the ‘reset’ include:
• The BRICS nations having already established their own development bank, which will, in time, come to challenge the US controlled IMF and World Bank. https://en.wikipedia.org/wiki/New_Development_Bank
• As a part of its sanctions regime, America has been threatening to have the Russian economy isolated (just as they have with the Iranian economy on trumped up evidence of an imaginary nuclear weapons programme) by cutting it off from the SWIFT system of international bank communication and settlements. https://en.wikipedia.org/wiki/Society_for_Worldwide_Interbank_Financial_Telecommunication Since September 2014, Russia and China have been working on an alternative to the American monopoly of the SWIFT inter-bank system, due to be open for business later this year https://itar-tass.com/en/economy/748916 . The intention is clearly to be able to protect their economies from their current vulnerability to this avenue of American economic blackmail.
• Increasingly, trade in petrodollars is being replaced by trade in local currencies. https://www.huffingtonpost.com/alastair-crooke/petrodollar-us-saudi-policy_b_6245914.html
These are all developments that are dangerous for world peace. The American control of the World’s reserve currency, in which so much international trade has had to be conducted, has allowed it to print whatever dollars borrower nations require, at no cost to itself. With an annual military expenditure that, at $640 billion, is an order of magnitude greater than that of its nearest competitor, (China, which comes in at less than $200 billion) this conjured money can then be diverted into ensuring the Empire’s overseas ducks stay in line.
Things are changing and we can expect to see an increasingly desperate USA taking ever-increasing risks with global peace in order to prevent that change taking place. It is probable, such risk-taking will only speed up the process it aims to prevent (along the same lines that America’s sanctions have spurred China and Russia into increased economic cooperation and just as America’s war on terror has so greatly added to the problem of global terrorism.) We live in interesting times!