Last month the Federal Treasurer Wayne Swan sparked a short burst of celebrations with his announcement that Australia had retained its three triple-A (9A) sovereign credit rating. The catalyst: the assessment made by credit rating agency Fitch Ratings, the lesser of the ‘big three’ credit ratings agencies, to reconfirm Australia’s triple-A credit rating. The rating means that Australia has been sitting on a 9A rating from the big three since January 2012. Yet, this was also the case when sovereign ratings were released on 3 January 2013, three months earlier. And when Standard and Poor’s (S&Ps) released their rating confirmation in February AAA it was taken in stride. Perhaps somewhat mired by reality with S&P’s, warning that, despite the country’s high levels of foreign debt, high levels of household debt, inflated property market, decline in construction activity due to mining companies scaling back investment plans, and slumps in sectors outside the mining industry, the AAA rating still stands. AAA is still AAA however, and according to Treasurer Wayne Swan S&P had delivered a vote of confidence in the economy. (Confidence that the caveat of conditions to be delivered by government in exchange for the AAA rating would be met.)
So why in March celebration over actuality? Timing: the March announcement of the 9A rating provides the investment context for the April release of Exchange-traded Treasury Bonds (eTBs) onto the Australian Stock Exchange. Given the bad news in February, the March assessment from Fitch is a half time pep talk, remarking on the capacity of the Australian economy “to absorb shocks”, which it attributed to, “low public debt, a free floating exchange rate, liberal trade and labour markets”: the core conditions of a sovereign-deregulated economic system, reinforcing deregulated currency, deregulated trade and deregulated labour markets as good governance by governments. The lack of financial regulation becomes intertwined with, and dependent on, the larger all encompassing economic system, and the capacity of the economic system to manage the financial sector. The separation of power between the government’s authority over economic policy and the embedded control of financial sector agents with financial alliances and interests is clear. The government has been reduced to a simulation of a sovereign institution, a compromised authority, usurped to promote and maintain the preferential conditions for the financial sector activities at the expense of its citizens.
Driving from the back seat CRA’s have a history of negotiating sovereign ratings to produce the economic policy and legislative framework desired to satisfy the needs of the financial system. Once upon a time they were able to use the threat of financial crisis as disincentive; or the growth resulting from a deregulated economy as incentive; now all that is needed to coerce national institutions to respond accordingly is the cost of borrowing as their debt obligations and responsibility to maintain a banking sector mired in debt requires more and more capital. This barter between government and the CRAs illustrates that such an exchange takes place within a commercial context, exposing the deeper dilemma, of the universal context in which both government and financial sector actors co-exist, conflating public and commercial interests into one marketplace which is aggressively skewed towards commercial and private interests.
To demonstrate the scope and limitations of government within the global financial system we can simply look at how CRAs operate. CRAs serve as an independent regulatory framework for the financial system the belief in which precipitated nations to dismantle their own regulatory frameworks as outlined in the Bretton-Woods agreement (model of capitalism), so the first surprise is know that the big three Fitch, Moody’s and Standard and Poor’s control a 95% share of the market, with Moody’s and Standard and Poor’s estimated to control roughly 40% share each Locally based yet operating beyond the scope of national boundaries, UK-France based Fitch, and US-based agencies Moody’s and S&Ps, are components of a national financial sector and (respective) national financial systems i.e. their corporate structure, activities undertaken, employment and so on is regulated (to some extent) by a national legislative framework created and instituted by the government. S&Ps has two physical locations in Australia, Moody’s and Fitch each have one. Each ratings agency has a physical presence within the country, within the national financial and economic system yet their assessments supersede national frameworks, and the companies themselves operate inter-nationally, within a globalised financial system, and a substantially globalised economic system (not absolutely as there are national differences in economic policies i.e. minimum wage, employment conditions, taxation systems etc). Considering the multiple organisational frameworks CRAs operate within and between, the scope of effect of CRAs and the level of influence they have is not without its consequences. What would 2007 have been without the AAA-rated shock credit crunch and Lehman Brothers default? … and the rest…
In Australia the national economic regulatory framework began to be dismantled with the establishment of the Reserve Bank of Australia (RBA) in 1960. Simultaneously an institution was erected to serve as the central bank of a sovereign nation (mainly attending to monetary policy and debt servicing obligations, shackling the nation to commercial interests) but also as an actor and an agent within the national and international financial system. It is a commercial entity. In Australia both the Federal government and the RBA borrow from commercial banks and other private financial institutions: a conflict of interest which lies at the very heart of the national framework: rescue packages to the ‘big four’ banks have been quietly delivered by government and the RBA under the radar of scrutiny since 2009. The commercial banks which provide the liquidity/credit to government to perform its operations. Confirmed by an IMF report released November 2012, and reported in the Australian Financial Review, Australian Banks ‘need more capital’. And earlier last month Christopher Joye of the Australian Financial Review reports the RBA quietly increases bank bailout buffer. Mounting events illustrate the escalating structural crisis in the Australian banking sector with the banks bad debt constraining the capabilities and capacities of the financial sector, becoming a problemmatic situation for government and a burden on its citizens.
Three decades of re-modelling has lead to a national financial system geared towards commercial (private) enterprise rather than national (sovereign) agency. The government have been busy writing away their controlling interest in the national economy, and along with it a level of financial management required to maintain a stable national financial and economic system. Any economic system is a political framework yet the almost full deregulation of national economies (governance without government) in the belief of the self-regulating market, has politically weaken national government ability to manage, maintain, secure national economic prosperity and ability to respond to the needs of the population. The RBA , the Australian Prudential Regulatory Authority (APRA), the Australian Securities Investment Commission (ASIC) and CRAs, are all aligned first and foremost within a globalised financial system, it seems dubious to even believe their ability to ‘regulate’ national financial and bank debt and bank liquidity to ensure the security of credit for government operations.
Taking into account the news of the release of Exchange-traded Treasury Bonds (eTBs), what has transpired between the financial sector and government is the commitment to maintain current arrangements. With the release of eTBs the government is seeking to leverage the national economy, hedging it against itself, in order to try to sustain the current failing economic structures.
It’s a very thin veil between the national and the global. The national underpins the global. It is a necessary pre-condition of the global because of what the national economy stands for: population, productivity and secured assets. Perhaps with this bird’s eye view, the option of returning to strong public policy may not be seen as such a bad idea after all?