Phantom Risk in Libya; or, how the US government is Insane

Posted on 21/02/2011 by

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News has just come out of Fitch Ratings: Libya has had its credit rating dropped from BBB to BBB-minus. For those who don’t speak central banker, this means that Libya’s debt is now considered soggy used newsprint, instead of the far superior soggy unused newsprint. They’ve also warned that if the Libyans don’t start to behave themselves, the debt might be downgraded again, to mouldy soggy used newsprint.

This is sure to be quite a blow to the Libyan government, which has precisely zero debt. Read that again if you missed it: Fitch Ratings is downgrading something which does not exist. Libya’s BBB-minus rating is about as meaningful as saying Frodo lives and then inviting your friends to march on Mordor.

A move of this nonsensical nature can only have one source, as far as I’m concerned: the US government. The USG is addicted to the notion of perception management, and I can think of little else which is more perception-oriented than downgrading debt which doesn’t exist. Anyone who tries to pull the ‘Fitch is a private company and not part of the US government’ line with me is going to get slapped.

To repeat, downgrading nonexistent risk is purely an attempt at perception management, and can be analysed from a very crude behavioural conditioning perspective. In the world where Fitch is ‘important’, many — if not most — have very heavy debt loads, most likely beyond any reasonable ability to be paid back. Essentially debt slavery, if you will. It is a fairly constant human cognitive trait to universalise one’s own situation, and see it mirrored with greater or lesser exacting precision throughout the world.

So, by shouting that Libya has had its debt downgraded, and sotto voce adding that there is no debt to be downgraded, Fitch is playing on that facet. The USG and its incestuously intertwined corporate allies, like Fitch, have a pretty clear purpose: they want to scare people into docile obedience by using perceptions of debt as a weapon. Equating revolution with putative debt downgrades is easily and irrationally internalised by indebted people as “if I don’t be good, I’ll be punished, too!”

“Be good little oppressed debt slaves and keep your heads down; don’t read about WikiLeaks, and don’t pay any attention to those nasty revolutions. We’ll take care of everything!” Or something like that.

This only works with those people who are 1) greatly in debt, 2) care, and 3) don’t read very closely and can therefore miss how Libya doesn’t have any debt to be downgraded. Judging by the number of people who claim to be victims of predatory lending practices, that does in fact cover quite a large percentage of the population.

The problem with weaponising perceptions of debt, is that it assumes people will not question the value of debt. In other words, debt has to be looked at as an asset, not a liability; so long as people perceive that they are getting the better end of the deal with their debt, such perception management will largely succeed in bludgeoning people into silence and docility. A people who have no debt, like Libyans, are neither cowed nor swayed by such foolish nonsense: they have decided they will either die or be free. They will not be murdered into submission, so I sincerely doubt that Fitch downgrading nonexistent debt will be the golden bullet to keep Libyan oil flowing freely.

Here can be seen how the USG is mad: because one tool — credit ratings — can be and have been used as bludgeons to enforce some sort of agenda, the institution thinks that the tool can be used in all situations. The logic behind this, I posit, is not that the tool is applicable for the situation, but rather every situation fits the tool. In other words, a hammer bashes things into wood, therefore it can be used equally well on screws and nails.

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Posted in: Analysis