By Chris Powell
Standard & Poor's is catching hell for cutting the credit rating of the U.S. government and threatening to cut the credit rating of other governments. People are blaming the agency for the stock market declines that have followed all over the world. With Italy's penchant for comic opera, prosecutors in Milan have even raided S&P's office there in pursuit of evidence for a "charge" of unfairly criticizing the country's financial system.Yes, S&P long awarded spotless credit ratings to what were essentially frauds, so the agency's credibility is less "standard" than "poor." But the company's mistakes are no rationale for continuing them.
And yes, having the ability to pay its bills in currency it prints by itself, the U.S. government is unlike ordinary businesses and need never default on its debts, at least in a technical sense. But in a practical sense, the government long has been defaulting on its debts, as the value of the dollar, the currency in which those bonds are repaid, has fallen 30 percent in the last 20 years, and about 14 percent in the last year alone, as measured against other major currencies. Going back to the creation of the Federal Reserve in 1913, the dollar's value has diminished by more than 90 percent. The other day the Fed promised to keep interest rates at virtually zero for another two years, which is to say that interest rates will remain negative, below the inflation rate, the rate of the dollar's debasement. So practical default on the U.S. government's debt seems likely to continue.
Further, these days there is no genuine market for U.S. government bonds, as most are being purchased by the Fed and by foreign central banks as a matter of trying to hold the world financial system together. Without such purchases, particularly by China and Japan, there's no telling what U.S. government bonds would be worth, if anything. And since there really is no repayment of U.S. government bonds anyway, old bonds being retired only through issuance of new bonds with the government's net debt always increasing, the solvency of the government became irrelevant to its debt long ago.
What's relevant here is only the value of the dollar. No one in authority -- not the president, the treasury secretary, or the chairman of the Fed -- will speak candidly on the point, but the record is plain enough. Devaluation of the dollar is and always has been government policy; indeed, the capacity for strategic devaluation, what is called a "flexible currency," has always been the very point of central banking.
Some people think this is good, as it provides a "lender of last resort" to stave off financial disasters. Some people think it is bad, since it hasn't always worked well and lately has hardly worked at all; since it has been perverted into a system of infinite patronage for the crooked financial elite; and since it has deprived the world of any stable measure of value, and thus has expropriated savers, sometimes overnight.
But the value of the currency and, more so, the location of the power to determine that value are what the argument should be about, not whether a ratings agency exceeded its competence.
* * *
"Everybody has won," said the dodo bird in "Alice in Wonderland," "and all must have prizes." This policy considerably diminished the prizes, and poor Alice got only a thimble out of it, but that soon may be more than will be available to students at Glastonbury's middle school. For the school superintendent has stopped publication of the school's honor roll, figuring that since most kids at the school make the honor roll, recognizing them publicly risks embarrassing the few kids who don't make it.
Since Glastonbury's students do well on statewide standardized tests, its middle school's honor roll may well represent much achievement. So the issue there may be at what age kids should sense a tiny bit of responsibility for their performance in school. Whatever that age is, the decision to withdraw the honor roll in Glastonbury lowers standards and probably does no real favor to the students whose supposedly tender egos it would protect.
Meanwhile the honor rolls at Connecticut schools sometimes have almost as many names as the Manhattan telephone book. This doesn't quite square with state government's recent discovery that more than two-thirds of the degree-seeking freshmen in the state university and community college systems require remedial math or English or both.
That is, these students should not have been admitted to college or permitted to graduate from high school in the first place. But many of them probably made the honor roll there.
-----
Chris Powell is managing editor of the Journal Inquirer.
No comments:
Post a Comment