Japan sees its sovereign credit rating lowered by international rating agencies while it remains the world's biggest creditor nation. Moody's Investor Service downgraded Japanese government bonds by two notches recently to A2, or one grade below Botswana's, not to mention Chile and Hungary. Japan has the world's largest foreign-exchange reserves: $446 billion; the world's biggest domestic savings: $11.4 trillion (US gross domestic product was $10 trillion in 2001); and $1 trillion in overseas investment. And 95 percent of the sovereign debt is held by Japanese nationals, which rules out risk of default similar to Argentina. Japan has given Botswana, where half of the population is infected with the AIDS virus, $12 million in grants and $102 million in loans.
Why does the New York-based rating agency prefer Botswana to Japan? The Botswanan government budget is controlled by the foreign diamond-mining interests to protect their investment in the mines. Botswana does not run a budget deficit to develop its domestic economy or help its poverty-stricken people. Thus Botswana is considered a good credit risk for foreign loans and investment. Japan, on the other hand, is forced to suffer the high interest cost of a low credit rating because its government attempts to solve, through deficit financing, the nation's economic woes that have resulted from excessive focus on export. Dollar hegemony denies a good credit rating even to the world's largest holder of dollar reserves.
The Asia-Pacific trade system has been structured to serve markets outside of Asia by providing low manufacturing production cost through the use of cheap Asian labor. This enables the United States to consume more without inflation and without raising domestic wages. Yet all the trade surpluses accumulated by the Asian economies have ended up financing the US debt bubble, which is not even good for the US economy in the long run. Cheap imports allow the US to keep domestic wages low and contribute to a rising disparity of both income and wealth within the US where consumer purchasing power comes increasingly from capital gain rather than rising wages. The result is that when the equity bubble of inflated price-earning ratio finally bursts, wages are too low to keep the economy from crashing from a collapse of the wealth effect.
After thoroughly impoverishing the Asian economies with financial manipulation of crisis proportions, the US now works to penetrate the remaining Asian markets that have stayed relatively closed: notably Japan, China and South Korea. Control of access to its markets has been Asia's principal instrument for its sub-optimized trade advantage and distorted industrial development. This strategy had been practiced successfully first by Japan and copied with various degree of success by the Asian tigers. Protectionism will survive in Asian economies long after formal accession to the World Trade Organization (WTO).
China, with a giant integrated market composed of a fifth of the world population, can swap market access for technology transfer from the world's transnational technology corporations. Once free from dollar hegemony, China can finance its domestic development without foreign loans and capital. The Chinese economy then will no longer be distorted by excessive reliance on export merely to earn dollars that by definition must be invested in dollar assets, not yuan assets. The aim of development is to raise wage levels, not to push wages down to achieve predatory competitiveness. Yet export under dollar hegemony requires keeping wages low, a prerequisite that condemns an economy to perpetual underdevelopment.