The results are absolutely astounding when these changes in rates are used to show how much countries would pay to service their national debt under Dagong’s rules. Using the first “fixed” method yields a total annual change in interest payments on debt of $112.7 billion for the world, while the more realistic “graduated” method results in a change of over $370 billion. If the world adhered to Dagong’s ratings, “free” countries would face an increased annual interest payment bill of $327.5 billion, while “not free” countries would receive a collective refund of $36 billion. The pattern is almost identical if one compares the leading industrial nations of the G-7 with the BRICS.
Ratings Winners and Losers: Estimated Changes in Debt Interest for Select Countries (billions of U.S. dollars)
Not surprisingly, China comes out ahead, saving itself up to $34 billion annually. The United States is the biggest loser. Multiplying a seven-notch deterioration in its rating by its $21.7 trillion national debt results in a higher interest rate bill of between $76 billon and $304 billion. Per year! To put that figure in perspective, the total U.S. federal government deficit in fiscal year 2018 was $782 billion. This additional interest charge would raise the deficit to almost $1.1 trillion. To fund the additional interest payments would require a tax of $928 for all 327 million Americans. Alternatively, President Donald Trump’s wall at the southern border would cost only $70 billion, and there would still be enough money to fully fund high-speed rail between Washington, D.C., and Boston ($151 billion) and between Los Angeles and San Francisco ($98 billion).
Looking ahead
Dagong’s ratings have not been adopted by China or anyone else, but they serve as a potential incentive system for governments and investors. Moreover, they reinforce other prominent norms favored by Beijing, including state intervention in the economy and regime control of information and the internet. As China’s influence grows, investors, producers, and other governments may not only make peace with these norms but make them the default.
The United States and other democracies certainly need to counter Chinese interventionism, outright coercive actions, and subtler forms of political influence. Yet the most important path to ensuring that Dagong’s values don’t become the world’s values is to strengthen democracies and their ability to not only provide freedom but to effectively govern and address the full range of societal challenges that increasingly impact daily life and financial well-being. These include achieving inclusive growth, harnessing technological innovation and limiting its negative effects, ensuring public safety, addressing pollution and climate change, and reducing interstate conflict. The more democracies walk the walk, the greater their success—and the less attractive authoritarian systems that propose an easy shortcut to prosperity and power will be. If so, the political bounce that the United States and other democracies receive from credit rating agencies will be deserved and endure.
Democracy is expensive no matter what. Citizens can work diligently to protect and nurture it, or they can start cutting checks to Dagong once it achieves hegemony over the ratings world. The smart investment is obvious.
By: via @AlliesFin Serve T.ME/ALLiESFiN
