Re: What to do about (public) Debt-Rating Agencies?

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Japan sees its sovereign credit rating lowered by international rating agencies
while it remains the world's biggest creditor nation. Moody's Investor Service
downgraded Japanese government bonds by two notches recently to A2, or one grade
below Botswana's, not to mention Chile and Hungary. Japan has the world's
largest foreign-exchange reserves: $446 billion; the world's biggest domestic
savings: $11.4 trillion (US gross domestic product was $10 trillion in 2001);
and $1 trillion in overseas investment. And 95 percent of the sovereign debt is
held by Japanese nationals, which rules out risk of default similar to
Argentina. Japan has given Botswana, where half of the population is infected
with the AIDS virus, $12 million in grants and $102 million in loans.

Why does the New York-based rating agency prefer Botswana to Japan? The
Botswanan government budget is controlled by the foreign diamond-mining
interests to protect their investment in the mines. Botswana does not run a
budget deficit to develop its domestic economy or help its poverty-stricken
people. Thus Botswana is considered a good credit risk for foreign loans and
investment. Japan, on the other hand, is forced to suffer the high interest cost
of a low credit rating because its government attempts to solve, through deficit
financing, the nation's economic woes that have resulted from excessive focus on
export. Dollar hegemony denies a good credit rating even to the world's largest
holder of dollar reserves.

See full article:

http://www.atimes.com/atimes/China/DG23Ad04.html

Henry C.K. Liu

Eric Miller wrote:

> Hi folks,
>
> How we post-Keynesians (especially those of the "soft-currency economics"
> genre) respond to debt-rating agencies grading sovereign public debt that we
> claim is (nominally) fully secure?  So far I haven't come across any
> discussion on this in any of the post-Keynesian books or sites I've been to.
>
> The only risk I can see that would justify a non-perfect rating is the risk
> inherent in any/all of:
> 1) unexpected inflation eroding the *real* value of debt
> 2) unexpected changes in exchange-rates altering the value of sovereign debt
> denominated in another sovereign currency
> 3) the country dollarizing or doing something else dramatic to its currency
> or its central bank that would remove the sovereign aspect of its debt.
>
> Yet these agencies still routinely give sovereign debt a less-than-perfect
> rating without using any of these justifications.  Instead, they typically
> grumble about a government not being "prudent" or "living beyond its means"
> etc.  Could it be that these institutions are simply wrong?
>
> Regards,
>
> Eric Miller
> ewmiller@xxxxxxxx