Is Moody’s a criminal enterprise or just plain ignorant?

I’ve written about Moody’s before. You may know Moody’s as one of the “Big Three” credit rating agencies that gave high grades to worthless securities, and helped start the Great Recession.

You also may know standard practice for rating agencies is to be paid by the businesses they rate, a clear conflict of interest and an open invitation to criminality.

And, if you are a regular reader of this site, you know that unlike cities, counties, states, euro nations, businesses, you, and me (all of which are monetarily NON-sovereign), a Monetarily Sovereign (MS) nation never can be forced into bankruptcy. Never.

A Monetarily Sovereign nation can pay any bill of any size at any time, simply by creating its money. For MS governments, ability to pay never is an issue. The only issue is willingness to pay. 

Thus, an MS credit rating cannot legitimately be based on the amount of indebtedness. If the MS nation is willing, it can pay any bill.

An MS nation, even with minimal debt, could be given a low credit rating, if it has a history of refusing to pay its bills.  But, an MS nation, even one with huge debt, should receive a high credit rating if it always pays its bills.

To summarize, the “Big Three” credit agencies have a history of mis-rating securities, being paid by the subjects of their ratings and, as you will see, probably not recognizing the fundamental differences between Monetary Sovereignty and monetary non-sovereignty.

Reader “elizabethharris001” brought to our attention, an article in the Jerusalem Post titled, “Moody’s warns Israel new budget could downgrade credit rating.” The article said, in part:

Credit rating agency Moody’s on Thursday warned that the 2017- 2018 state budget proposal could be a step toward undermining Israel’s solid A1 credit rating.

Israel has a “solid A1 credit rating,” because it always pays its bills, in full and on time.

Finance Minister Moshe Kahlon swept aside legal limits on spending increases and the deficit target in his budget proposal, which accommodated the many, expensive promises made in coalition deals.

The plan is expected to raise Israel’s debt-to-Gross Domestic Product (GDP) ratio, which fell below 65 percent in the past year.

This will have no effect on Israel’s ability or willingness to continue paying its bills, in full and on time.

“The rating or outlook could come under downward pressure if the commitment to fiscal discipline over the medium term was to wane,” the agency wrote in its annual Credit Analysis of Israel’s government.

“With the improvement in debt-to-GDP having already slowed compared to the mid-2000s, renewed fiscal easing puts at risk Israel’s credibility for budget discipline,” the report said.

When Moody’s mentions “budget discipline,” it is talking about austerity, the same process that has destroyed the economies of the euro nations — the same process that is responsible for every depression in U.S. history, as well as most recessions.

The Moody’s report was not all gloomy, however. It also praised Israel’s dynamic economy and its relatively strong performance when compared to many other advanced countries, still struggling in the aftermath of the 2008 global financial crisis.

Israel has a “strong performance,” but its debt above 65% of GDP warrants a reduction in credit rating? Think about the “logic” of that.

By confusing (intentionally??) MS nation finances with business finances (where large debt can impact ability to pay) Moody’s claims Israel’s debt requires a reduced credit rating.

Utterly false and misleading — demonstrating an ignorance bordering on criminal.  Is Moody’s even consistent in its false evaluations?

From Trading Economics:
Government Debt to GDP in Japan averaged 123.60 percent from 1980 until 2015, reaching an all time high of 229.20 percent in 2015.

Moody’s credit rating for Japan was last set at A1 with stable outlook.

Before we continue, Moody’s credit ratings, from top to bottom are: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, and lower.

Japan’s 229 and Israel’s 65 apparently warrant the same rating, and neither Japan nor Israel has been given Moody’s highest rating, despite the fact that both are Monetarily Sovereign and can and do pay all their bills on time.

Let’s look at a few other countries, courtesy of Trading Economics:

Canada: Debt to GDP of 91.50; Moody’s credit rating: Aaa

Canada, an MS nation with a much higher Debt/GDP ratio than Israel’s, and no better record of paying its bills, has an Aaa rating, four levels higher than Isreal’s current rating (which is about to be lowered).

As if that weren’t strange enough, let’s look at really crazy:

“Austria’s public debt reached a new peak of 86.2 percent of GDP in 2015 compared to 84.3 percent in 2014.”  Moody’s credit rating: Aaa, the highest rating.

So Austria, with a “worse” Debt-to-GDP ratio that Israel’s, and no better record of paying its bills, has a higher credit rating — and Austria, unlike Israel, is monetarily NON-sovereign.

Austria is part of the eurozone; it uses the euro, not it own sovereign currency. Austria does not have the unlimited ability to pay its bills. Unlike Israel, Austria could go bankrupt. But it has Moody’s highest rating.

And then here’s another eurozone nation, Germany:

“Germany recorded a Government Debt to GDP of 71.20 percent in 2015.” Moody’s credit rating: Aaa.

Germany too, is monetarily non-sovereign, and could be unable to pay its bills, but has Moody’s highest rating.

Finally, we come to the United States:

The United States recorded a Government Debt to GDP of 104.17 percent in 2015. Government Debt to GDP.  The United States averaged 61.94 percent from 1940 until 2015, reaching an all time high of 121.70 percent in 1946 and a record low of 31.70 percent in 1974.

Moody’s rating: Aaa

I call your attention to that 31.70 lowest Debt/GDP ratio. It comes right before a recession.

Monetary Sovereignty

In fact, there is an uncanny relationship between debt reduction and recessions. Most recessions follow a period of federal debt reduction.

And then there’s this inconvenient fact:

U.S. depressions tend to come on the heels of federal surpluses.

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

Finally, while Gross Domestic Product is a measure comprising 12 months, Federal Debt is a historical measure comprising the entire life of the United States. In short is the classic apples/oranges, meaningless ratio.

Bottom line: Moody’s (as well as the other two major rating agencies, S&P and Fitch) either do not understand how Monetary Sovereignty works or are paid not to understand.

They evaluate nations as though the nations were monetarily non-sovereign businesses. The rating agencies don’t reveal the basic fact that an MS nation cannot be forced into bankruptcy. It can pay its bills forever, despite its Debt/GDP ratio.

Any credit rating is based on just two factors: Ability and willingness to pay bills.

Because an MS nation has the unlimited ability to pay, Debt/GDP has no meaning when evaluating credit. No matter what its Debt/GDP ratio, any nation may or may not be willing to pay its bills.

The Big Lie states: “Federal taxes fund federal spending.” But for an MS nation, spending is funded by money creation, not by taxes nor by borrowing.

The Big Lie is a carefully crafted story. It is designed by the very rich to convince everyone there isn’t enough money available to narrow the Gap between the rich and the rest.

The Big Lie forces countries to cut the spending that would benefit the lower and middle classes. It caused our too-slow growth following the “Great Recession.” It is the method by which the very rich retain power over the world.

The credit agencies are willing, and well-paid, accomplices to the Big Lie.

Is it ignorance or paid criminality? You decide.

Rodger Malcolm Mitchell
Monetary Sovereignty

===================================================================================
Ten Steps to Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE AN ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONEFive reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE CORPORATE TAXES
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-tranferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and corporate taxes would be an good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

9 thoughts on “Is Moody’s a criminal enterprise or just plain ignorant?

  1. “1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.” ~ RMM

    The cause of the 1930s depression was gratuitous austerity. However, people devise all kinds of other explanations for the 1930s depression, none of which make any sense. People do this because of the Big Lie.

    Henry Morgenthau was U.S. Treasury Secretary from 1934-1945. Morgenthau believed in a balanced federal budget, and the need to reduce the national debt.

    By the spring of 1937, production, profits, and wages had regained their 1929 levels. But Morgenthau convinced the President and US Congress to suddenly impose drastic austerity on the nation, which plunged the US economy back into a depression.

    Milton Friedman said the cause of the 1938 crash was the Federal Reserve’s tightening of the money supply in 1936 and 1937. I disagree. The Fed controls interest rates, not the money supply. President Roosevelt himself blamed the 1938 crash on the monopoly power of large corporations. This too was nonsense. The cause was austerity.

    Like

    1. Milton Friedman also said we should end the fed and that it was the fed that caused the great depression, the ltcm crisis, the sl crisis, the housing bubble/crash.

      Fraud by the rating agencies, banks are not the cause of any economic event, they are symptom of a defective government that first encourages the fraud and looka the other way when it occurs.

      Governments set laws, not rating agencies nor banks.

      Like

  2. The housing bubble and the crash of 2008 could not have happened if the rating agencies had been honest.

    William J. Harrington was a senior analyst with Moody’s from 1999 to 2010. Harrington says that Moody’s is “corrupted to the core.” He says that banks and companies pay Moody’s to get a better rating, and to downgrade competitors. Harrington’s exposé was all over the news in 2011, but it was soon forgotten. As a result, the corporate media outlets still treat Moody’s as though the company is trustworthy.

    https://www.theguardian.com/business/2011/aug/22/ratings-agencies-conflict-of-interest

    Any Moody’s employee who complains about the scams is fired. An example is Eric Kolchinsky, who was a managing director at Moody’s.

    See
    http://www.mcclatchydc.com/news/politics-government/article24559855.html

    The SEC is equally corrupt. In fact, the SEC created the ratings cartel in 1975 when it mandated that all debt must be rated by a “recognized rating agency” meaning Moody’s, Fitch, or S&P. The SEC originally named seven firms, but this was later reduced to the Big Three.

    See
    http://davidstockmanscontracorner.com/pigs-at-the-trough-rating-agencies-as-corrupt-as-ever/

    Like

  3. So Moodys employs over 10,000 people to do exactly what? Decide whether a country will be good (pay bills by creating out of thin air, i.e. fraud, with ever decreasing value) or bad (decide not to pay because, i dont know, just because it sounds cool).

    Would you lend to such nation if you were a creditor? You would have to be a moron.

    You dont believe this but you expect your readers to? I can only think of one . . . , Elizabeth. The lady is . . . .

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  4. As you can see, I’ve edited the flames from your comment.

    Apparently, you don’t use U.S. dollars, because if you did, you’d be using federal debts created from thin air, exactly like T-securities.

    Anyway, if you know of a safer debtor than the U.S. government, please advise.

    Like

  5. Off topic…

    I see that the MMT people continue to chase their unworkable and unnecessary “universal jobs guarantee” chimera.

    Bulgarian-born economist Pavlina Tcherneva caught the “jobs guarantee” bug when she spent six years with the MMT people at the University of Missouri-Kansas City.

    The NEP blog recently featured the video below, in which Ms. Tcherneva says she opposes the idea of a Basic Income Guarantee (which I call Universal Social Security).

    Ms. Tcherneva favors a “jobs guarantee” over Universal Social Security because…

    [1]. “Poverty is not simply an absence of income.” For Ms. Tcherneva, poverty means not having a job, regardless of one’s income. Thus, a “universal jobs guarantee” would alleviate poverty better than would Universal Social Security. (This is absurd.)

    [2] She says that Universal Social Security is a “Trojan horse” that could be used as a pretext to eliminate all the (inadequate) social programs that exist today. She does not say what those programs are. Food Stamps? Social Security disability? (This too is absurd. Social programs exist for people who have insufficient income.)

    [3] She says that only a “jobs guarantee” would, “Provide the structure and institutional means through which to eliminate poverty, provide for the needy, and stabilize the business cycle.” She says, “The Basic Income Guarantee does not have this countercyclical stabilization function. It would provide income at all times, irrespective of macroeconomic conditions. Every fiscal policy has a countercyclical feature except the Basic Income Guarantee.”

    (More garbage. If people have an income, they spend money. This is countercyclical.)

    Four years ago, Rodger wrote this, which I agree with…

    “The MMT people have bought into the ‘labor = godliness,’ myth provided by the idle rich. They cannot imagine a world where the goal is not work, but life. So they bang on, telling themselves and anyone who will listen how much they love working, and saying that everyone else should love working too (while everyone looks forward to weekends and vacations and retirement, where they can escape work like rich people do).

    “The rich have brainwashed the not-rich into believing that labor itself, even pointless labor, is ethically superior, and that people accepting ‘freebies’ from the government are moral cripples, to be despised.”

    Yes. Unless the recipients of :freebies” are rich. Rich people think they are entitled to a free lunch because they “deserve” it. And most of society agrees with them. Meanwhile, MMT people say that average Americans are entitled to toil.

    Like

    1. The original form of “Jobs Guarantee” was slavery. All the slaves had jobs.

      It is the “Jobs Guarantee” that is the Trojan Horse — for slavery Slavery is exactly how a Jobs Guarantee would devolve: A vast assemblage of meaningless and underpaid jobs, enslaving the working class, forever.

      While the working class runs ever faster on the “jobs” treadmill, the idle rich will look on disapprovingly at all the sweat and grime beneath them.

      Like

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