On Friday August 5, one of the world�s leading credit rating agencies, Standard & Poor�s, downgraded the United States� top-notch AAA rating for the first time ever. S&P cut the long-term US rating down to AA+ with a negative outlook, citing concerns about budget deficits and political gridlock. In their statement justifying the downgrade the S&P stated that, �The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government�s medium-term debt dynamics.

�More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.�

The agency said it might lower the US long-term rating another notch to AA within the next two years if its deficit reduction measures were deemed inadequate. These are strong statements from a private agency, setting out to discipline the government of the United States with the threat of a further downgrade in the next 24 months. We have to answer a number of questions:

In all major capitalist countries, the power of the capitalist classes is hidden behind ideology (free market), behind law (protection of private property) propaganda (corporate-controlled media) the coercive organs of the state (military, police and prison) and the power of finance capital (banks, insurance and financial instruments). Credit rating agencies represent the power of financial capitalists and are usually held in the background to discipline corporations and governments. In moments of crisis these agencies show their hand.

These agencies along with the IMF and the US military have been the weapons against the true self-determination of all peoples. The peoples of the USA are now beginning to pay attention to the power that the IMF, these agencies and the military wielded over most countries in the world. U.S. Treasuries are traditionally considered to be a risk-free investment, and this is the first time the U.S. has ever been downgraded.

This downgrade is much more than a psychological blow to the prestige of the imperial overlords in the USA. This is a sign of a power shift and another blow to the position of the US as the sole super power. The most oppressed must organize to break the power of capital and the imperial overlords or humanity will pay a high price.

What is a Credit Rating Agency?

Credit rating agencies (CRA) are private entities that, over time, gave themselves the right to be arbiters in the financial system and in the international market place. There are credit rating agencies in most capitalist countries. The job of these agencies is to provide an analysis of the risk posed to investors by bonds, companies and countries. This analysis is supposed to be objective and the criteria, the analysis of risk, but the credit rating agencies are private entities owned by profit-making companies that perform what is essentially a regulatory role. These companies are supposed to serve the public, which expect them to stamp their seal of approval on safe securities and safe securities alone. But the CRA also serve their shareholders, who profit whenever that imprimatur shows up on a security, safe or not.

The rating agencies achieved their legal status over time, since the capitalist depression of the 1930s, but have become more important to the US economy in the era of financialization, since August 15, 1971. It was from this date when the US gave unlimited rights to the speculators after the government reneged on the articles of agreement of the IMF of 1944 that placed the convertibility of the dollar on par with US $35 for one ounce of gold. From that moment of financialization, the dollar was not backed up by the economic strength of the society but by sheer military power. During the Cold War, international capitalists were willing to shelter under the US military umbrella and one price for this shelter was to accept the political power of US credit rating agencies.

These private corporations are issued permits to be credit rating agencies by the Securities and Exchange Commission of the USA and hence, through the Nationally Recognized Statistical Rating Organization (NRSRO), the rating agencies perform basically a regulatory function to discipline sections of the capitalist class.

In the past twenty years, the business of credit rating followed the path of centralization and concentration of capital so that the rating business fell in the lap of three big firms: Standard & Poor�s, Moody�s Investor Service, and Fitch Ratings. These are powerful organizations that have the power the make life and death decisions about corporations and countries. They seek to be regulators when it suits them but seek to be like private citizens so that they cannot be prosecuted.

The subjective nature of their ratings will be brought out later but in the aftermath of the clear theft and fraud of the capitalist organization called Enron, the rating agencies in public hearings held by the SEC in 2002 insisted that ratings were only opinions and should have a limited role, which is to assess the creditworthiness of issuers on an ongoing basis, and the �likelihood that debt will be repaid in a timely manner.� The fact that ratings are �opinions� is important in the U.S. legal context as it allows these big three capitalist corporations to be protected by the First Amendment and from civil and criminal liability.

From Where Do They Get Their Power?

These credit rating agencies earn their power both from the fact that they are owned by the masters of the universe of Wall Street and also by the fact that their ratings are sanctified by governmental authorities and most importantly, by the International Monetary Fund (the IMF). The power of these agencies has accumulated over time and has been consolidated within the context of the power of finance capital over the international capitalist economy. By seizing a regulatory role, while eschewing a clear legal status, these agencies gained the political power to be whatever they wanted to be. Their power came from the influence they achieved by making �opinions� on millions of transactions.

Since the Depression of the 1930s, statutes and rules required that �mutual fund and money managers of almost every stripe buy only those bonds that have been given high grades by a Nationally Recognized Statistical Rating Organization. The effect was to give the three certified rating agencies in effect an oligopoly. This was the real power which these agencies used against the peoples of Asia and allowed US companies to move in to buy up assets cheaply in the aftermath of the Asian financial crisis (1997-1998). This power also played a role in the recent intimidation of European countries, including Greece, Portugal, Ireland, and Iceland, to launch austerity measures against workers by downgrading the ratings of these countries.

Power Struggles Within the International Capitalist System

There are numerous commentaries on the downgrade of the US but the one commentary that caught my attention was that of Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan administration and associate editor and columnist at the Wall Street Journal. This is a civil libertarian who was arguing that there is a struggle between the military and Wall Street for power in the USA. In an article published on counterpunch.com, after quoting from the statements of Dwight Eisenhower on the rise of the military industrial complex, Roberts claimed that up to the present the USA has been dominated by the military/security complex. According to this analysis of the downgrade, the only challenge to this military was Wall Street and Wall Street was using this downgrade to get more power over the military.

�The main power rival was Wall Street, which controls finance and money and is skilled at advancing its interests through economic policy arguments. With the financial deregulation that began during the Clinton presidency, Wall Street became all powerful. Wall Street controls the Treasury and the Federal Reserve, and the levers of money are more powerful than the levers of armaments. Moreover, Wall Street is better at intrigue than the CIA. The behind the scenes fight for power is between these two powerful interest groups. America�s hegemony over the world is financial, not military. The military/security complex�s attempt to catch up is endangering the dollar and US financial hegemony.�

Roberts explained that the security establishment has been trying to catch up with the power of the lords of finance by launching wars to enrich themselves and to gain more power in the society.

�The country has been at war for a decade, running up enormous bills that have enriched the military/security complex. Wall Street�s profits ran even higher. However, by achieving what economist Michael Hudson calls the �Financialization of the economy,� the financial sector over-reached. The enormous sums represented by financial instruments are many times larger than the real economy on which they are based. When financial claims dwarf the size of the underlying real economy, massive instability is present.�

�Aware of its predicament, Wall Street has sent a shot across the bow with the S&P�s downgrade of the US credit rating. Spending must be reined in, and the only obvious chunk of spending that can be cut without throwing millions of Americans into the streets is the wars.�

I do not agree with Paul Craig Roberts because he missed the rapid integration between finance capital and the military, as manifest by the fact that companies that profit greatly from militarization, such as Boeing, established financial arms. Most of the big investment and derivatives firms have established links with the private military industry. All the top private military companies and the military hardware manufacturers that are woven into the military-industrial complex are traded on Wall Street. Many of the top private military companies are subsidiaries of fortune 500 companies that are also traded on Wall Street. In fact, the intricate web of alliance between finance capital, the military and the corporate media/information mind control is now so dominant that we can talk of the finance-military-information complex, instead of the military-industrial complex. As the New York Times reported, one such private contracting firm �boasts of having �more generals per square foot than in the Pentagon�.� As a militarist state, where all is subordinated to the needs of the financial/military interests, there is no contradiction between the two, as Roberts claims.

As international capitalists with no cut-in-stone loyalty to the US state, the financial-military complex is now ready to do to the US what it had been doing to the rest of the world since 1945. Temporarily, these financial and military oligarchs need to work through the US state because it is that state that carries the authority to print dollars as long as the dollar remains the reserve currency of the world. This downgrade of the US credit rating is forward planning by the top capitalists to guarantee the political and military hegemony of the richest 1 per cent of the US population. As the dollar loses its status, there will be consequences for the global position of American capitalism. The Moguls of Wall Street want to ensure that the political leadership in the USA is sufficiently intimidated so that as the position of the dollar deteriorates and there are deepening crisis for capitalism inside the US, the state will take measures to continue to ensure that wealth is transferred from the working peoples to the capitalist class. Hence, this downgrade is part of a long term plan to discipline the working classes and the politicians in the US, just as how the IMF has been used in the past against the rest of the world.

The Track Record and Credibility of the Rating Agencies

It is now known that Enron was one of the most corrupt capitalist corporations. But it had a triple AAA rating by these credit rating agencies. When the full extent of the fraudulent activities of Enron were revealed, President George W. Bush claimed that this was one bad apple but soon after, the revelations about WorldCom and Global Crossing WorldCom fudged accounts to show inflated profits. Up to the day that Enron sought bankruptcy protection, none of the three rating agencies caught the fraud and corruption of Enron. After this grand scale theft, there were hearings in the US Senate. But there was no failure to catch the fraud because the same corporations who were behind the Enron fraud were the same forces that owned the credit rating agencies.

Throughout the period of the power of the financial houses, the blatant conflict of interest was too hard to ignore, so in the aftermath of Enron and WorldCom, there has been some regulatory response. The Congress passed the Credit Rating Agency Reform Act of 2006, ending a century of industry self-regulation. The purpose of this law was to promote competition in the rating industry by establishing a transparent and rational registration system for rating agencies seeking NRSRO status. It was also designed to enhance industry transparency, address conflicts of interest, and prohibit abusive practices.

But the SEC was itself impotent as the world saw from the financial crisis of the collapse of the investment banks in 2008. Bear Stearns and Lehman brothers had enjoyed top ratings from these agencies and the sub-prime products called Credit Default Obligations (CDOs) were given triple AAA ratings, even when these products turned out to be garbage. Of course, this garbage was held by the same bankers who owned the rating agencies.

In the aftermath of the fall of Lehman Brothers and the fact that the sub-prime mortgage crisis exposed the securities fraud by the financial houses, for a short time, Wall Street was on the defensive. There were dozens of lawsuits filed against the credit rating agencies. Citizens were calling for the fraudsters to be incarcerated but the rating agencies went back to their old line that their ratings are merely opinions and are protected by the First Amendment.

It was then left to Congress to act, and after the public outrage, the financial regulatory reform law adopted in 2010, known as Dodd-Frank Law, directed the Securities and Exchange Commission and other agencies to undo that link between the �opinions� of the Credit rating agencies and the claim that they could regulate themselves.

The Dodd-Frank Wall Street Reform and Consumer Protection Act enhanced the SEC�s enforcement mechanisms, and added a number of requirements on NRSROs that are immediately effective (i.e., do not depend on SEC rulemaking). The Dodd-Frank Act also required the Commission to adopt a number of new rules concerning conflict of interests.

According to the US government and their newssheet, �the Dodd-Frank Act requires every federal agency to review existing regulations that require the use of an assessment of the credit-worthiness of the security or money market instrument and any references to credit ratings in such regulations; to modify such regulations identified in the review to remove any reference to, or requirement of reliance on credit ratings; and substitute with a standard of credit worthiness as the agency shall determine as appropriate for such regulations.�

What this meant was that from June 2010, the SEC unanimously approved a plan to erase references to credit ratings from certain rulebooks. The agency also adopted a substitute to the ratings, the first of several such changes the commission had to enact. Dodd-Frank created a laundry list of new regulations for the industry, including proposals to make it easier for investors to sue the agencies. The SEC must also create its own Office of Credit Ratings to police the raters, though the agency has yet to open its doors, as it struggles to scrape together the needed money.

Since the passing of the Dodd Frank Act, these masters of the universe on Wall Street have been pushing back, spending millions of dollars to reverse Dodd-Frank and to ensure that the law is whittled until it is meaningless. However, while the bankers were seeking to protect themselves, the fact that they were holding on to garbage since the financial crisis was becoming clearer. In the past year, the vulnerability of the banks has been heightened by the capitalist crisis in Europe. As a means of pressuring the states of Greece, Portugal, Ireland, Iceland and others to implement austerity measures against workers, these rating agencies downgraded these countries� ratings. These downgrades exacerbated the class struggles in Europe where the bankers and the bond holders wanted to be paid. For the US capitalists, the crisis in Europe threatened the future of the Euro and the collapse of the Euro in the short term would serve the interests of the capitalists on Wall Street. This would ensure that there was no clears challenge to the dollar and the US could continue the military occupation of many countries in Europe, especially Germany.

However, some of these US capitalists were also exposed by the crisis in Europe and US banks wanted to ensure that the European Central Bank imposed austerity measures so that the full exposure of US banks would not be known. However, this crisis is not a simple one; it is structural and systemic and needs fundamental changes in how society is organized. This crisis has intensified in the past three months with the knowledge that states and societies such as Italy and Spain will also need the iron hand of international capital to impose harder burdens on the workers to transfer wealth from the majority to a minority.

Psychological Barrier

There are some who have stated that the downgrade is cosmetic because the other two rating agencies, Moody�s and Fitch, have retained the triple AAA rating of the USA. This may seem to be the case but those who have been following the troubles of the banks and the fake stress tests know better. The timing of the announcement of the down grade has some significance in the sense that it followed to false debate and conclusion of the debt deal.

By coming out after hours on Friday night when they knew the state of the markets, the downgrade also provided a false �public� cover for the well-publicized subsequent fall and rise in global stock markets. Political spinners were able to point to the downgrade as the �spark� for the drop in stock prices (particularly for the banks). In reality, the true causes are the growing risk and troubles in Europe, the continued lack of growth in the US, and the fact that in spite of all the trillions in bailouts of the banks, accounting rule changes, and the fake stress test exams to show that the banks are doing well, the market participants who know better than anyone the true status of the banks revealed that the banks are still in danger of collapsing.

Millions of persons around the world are paying attention and there are already signs that these foreign forces are losing confidence in the safety of US securities by the rise in the price of gold. The other point is that the political alliance that paved the way for this conjuncture is being strengthened by the power brokers in the Treasury/Wall Street/IMF relationship. It is this alliance that will work for the transfer of wealth to the top one per cent and will not countenance increased revenues from this small class. As we have argued before, ultimately, the question is not simply one of revenues and taxing the rich, but a fundamental restructuring of the system. However, in the short run, the call for more taxation and regulation of off shore accounts serve to expose the ways in which the capitalist class is above the law. Yet, these capitalist have to live somewhere and they do not want to live in the offshore sites of money laundering and lawlessness. Hence, they need laws to suppress workers, take away collective bargaining and the safety nets of social democracy.

The downgrade will raise the cost of borrowing; this in turn could trickle down to higher interest rates for local governments and individuals. The iterations of decline and deficits will increase the government debt and the deficit, and S&P has issued the clear threat that another downgrade will be coming after 18 months, if the Congress does not follow its advice to impose austerity measures.

The Chickens Coming Home to Roost

US government officials are calling the methodology of the rating agencies flawed, and some are calling for nationalization of the agencies and/or the establishment of an international rating agency under the United Nations. There was no such call when the same agencies were working with the IMF to impose hardships on the rest of the world. Now, we are told that the rating agencies cannot do math. But the destructive structural adjustment math that the IMF-rating agencies alliance have used to destroy economies and livelihoods in the global South over the past 30 years were never questioned by those now calling out this rating agency for its $2 trillion error in its computation used to justify the US downgrade. The complaint was that a treasury official had spotted a $2 trillion mistake in the agency�s analysis. Whether it was a mistake or not, a psychological barrier has been breached. The US is no longer beyond the sanction of agencies that it unleashed against other societies.

Crisis of Capitalism

Since the fall of Lehman brothers in September 2008, politicians have sought to cushion the blows to capital by making band aid remedies. For some, the issue has been one of regulation and more control over the financial institutions. There were hearings in the US Congress and the Dodd Frank law came into being. Through the media, the financiers went on the offensive about a recovery, but there has been no recovery because there was no fundamental alteration in the way capitalist ensured that wealth was transferred from the poor to the rich.

More importantly, the limits of US military power has been put on full display in Iraq and Afghanistan. The center of the world economy shifted to Asia while the USA and Europe were fighting in the Middle East. The ten biggest economies in Asia ring-fenced themselves against the USA and the instability of the dollar. This downgrade will reinforce this need for protection against the dollar. From China, there was the warning that, �International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.�

This call for international supervision did not include with it any statement on the conditions of working peoples who are suffering at present. Inside the USA, the political choices have been sharpened. It is either the articulation of democratic control by the people or oligarchic control by the banks and financial houses. The downgrade was not a challenge to the government but to the working peoples of the USA and the world.

Youths in the streets of Greece, London and Cairo are giving one response. The challenge is to coordinate these responses for a prolonged and sustained struggle to break the power of the financial-military-information complex. Those who have been following the gyrations of the capitalist debacle since 2007 will note that the events associated with the 2011 downgrade are simply precursors to what will continue to happen as the last 20 years of debt-driven growth in advanced capitalist nations unwinds. In the midst of this protracted crisis, the rich will seek to transfer wealth from the poor as the only means of sustaining their accumulation of wealth as year 4 unfolds of what is likely to be a 7-10 year recession/depression. The financial-military-information complex will continue to ensure that austerity to manage government debt falls on the backs of working people. Corporations will continue to claim that the only way they will invest some of their trillions in cash to create jobs and lower unemployment is to reduce regulations, lower corporate tax rates and perhaps even lower minimum wages. The American people must realize that the chickens have just come home to roost. The people must organize more and more to link up with working people�s struggles around the world to break up the banks, IMF-rating agencies alliance and their military enterprise. Financial institutions should be made to serve the people, not vice-versa.

BlackCommentator.com Editorial Board Member, Dr. Horace Campbell, PhD, is Professor of African American Studies and Political Science at Syracuse University in Syracuse New York. He is the author of Barack Obama and Twenty-first Century Politics: A Revolutionary Moment in the USA. Click here to contact Dr. Campbell.