The rating agencies S&P and Moody’s have been threatening to downgrade US government bond ratings because of “runaway” debt , at least since 2010. And they issued threats again last week amid the ongoing debt ceiling drama.

Standard & Poor’s said late Thursday that it could downgrade the U.S. credit rating as soon as this month, and there is a 50 percent chance it will do so within three months, if Washington fails to come to an agreement over the nation’s debt.

Moody’s Investors Service said Wednesday it has put the U.S. government’s top-notch credit rating on review for a possible downgrade because of the risk that Washington will not raise the federal debt ceiling in time to avoid a default.

Now for the key question : How serious/credible is the downgrade threat, whatever be the stated “reason”? Let’s turn to Dean Baker who wrote about this in 2010 when Moody’s issued a threat on account of the “record budget deficits” :

There is one way in which the public can better recognize Moody’s motivations. All banks, including giants like Citigroup and Goldman Sachs, hold huge amounts of U.S. government debt. There are also reliant on the U.S. government for all sorts of reasons, including potential bailouts. If the U.S. government were to default on its debts, then it would almost certainly wipe out every major bank in the country. There is no plausible scenario in which the U.S. government defaults on its debts and the banks will still be able to make good on their debt payments.

This means that if Moody’s were to downgrade the government’s debt, to be consistent it must also downgrade the debt of Citigroup, Goldman Sachs and the other big banks. If Moody’s downgrades the government’s debt, without downgrading the debt of the big banks — or even threatens to downgrade the government’s debt without also threatening to downgrade the debt of the big banks — then it is more likely acting in pursuit of Wall Street’s political agenda than presenting its best assessment of the creditworthiness of the U.S. government.

Aaaahhhhh, so there you have it, folks – it is nothing but outright dishonesty on the part of ratings agencies.

Here we need to remember that the big Wall Street banks are still basket cases and are on life support, thanks to trillions of dollars in backdoor bailouts by the FED. They hold tons of US government bonds bought using money borrowed for free (0% interest) from the Fed and the interest from those bonds contributes significantly to their “real” profits. The government bonds will become worthless in case of a default. This even as the banks are holding billions in bad debt (mortgages etc) thanks to their gambling addiction and they value these at whatever prices they want to, thanks to the phony accounting practices (approved by their stooges in Congress) they follow (these represent the phony/inflated part of their stated profits).

Seriously, do you think the downgrade will happen, given that we are a country of the bankers, (run) by and for the bankers? And given that our government’s priority is to prop up basket case banks even at the cost of the real economy?

One reason the rogue ratings agencies are still making such statements is because no heads rolled , just like in the case of their allies – the bankster thugs for the mass destruction they caused – 8 trillion $ in USA and a total of 15 trillion $ globally. An amendment for reforming these agencies was defeated during the Wall street reform debate.

So, what really is behind the threats? The threat will very likely to be used to push unacceptable, unpopular cuts to social safety nets, as Baker states. Shock doctrine, in other words. Remember the post-9/11 hysteria (to rip civil liberties), the weapons of mass destruction in Iraq, the TARP hysteria (Boo ! if we don’t bail out the casinos that are the big banks, it will be armageddeon !!!! )? Or we were told that the sky would fall and the unemployed will be kicked to the curb if billionaires don’t get their bailout a.k.a Bush-Obama tax cuts extension in December? More likely, I suspect it will be used to bring “rogue” Democrats – those who resist cuts to social programs – in line, so they “hold their nose” and vote for an unpopular “deal” . It is never a bad time for Shock Doctrine .

Note : Another good one from Dean Baker when S&P “threatened” in April :