The Credit of the State
Security/ International Politics PRIO/ Lancaster University London, United Kingdom
What kind of idea of the state is emerging from the credit crisis? With the nationalisation of financial institutions, the return of fiscal policy, calls for higher regulation and the discrediting of risk-based models in favour of uncertainty, the global crisis seems to have returned Keynesian elements to the world. At the same time the interventions are represented as decisively unidealistic, forced, temporary and pragmatic. It also turns out that contrary to the doctrine of self-regulation, banks have implicitly or explicitly relied on the lender of last resort in their risk-management, and, as illustrated by the Lehman Brothers episode, that the position of uncertainty over bail-outs that central bankers were holding up to discipline the market was untenable. But at the same time as banks and investors rely on and demand ultimate governmental credit guarantee, desperate for a "floor" to market losses, the state has no privileged position in the financial system and is itself subject to credit ratings. Low risk premiums of government bonds are wholly backed by national solvency, fiscal discipline, economic strength and currency-issuing power. The issuance of new U.S. government debt to finance the budget deficit, liquidity programmes, mortgage purchases and bank and industry bail-outs has therefore increased bond yields since the beginning of 2009. While prominent pyramid schemes such as Madoff and Stanford are penally persecuted, the U.S. government is itself driving a spectacular Ponzi scheme. Despite the recapitalisation of banks, Libor rates have also risen, which may indicate that the cost of protecting the debt of banks against default is increasingly connected to the national debt. On the assumption that circulation and liquidity depend on a plausible narrative of security, this paper seeks to explore the idea of state credit and credibility and its role in the operation of liberal governance and crisis.