Tuesday, November 9, 2010

China's Dagong Downgrades US Debt to A+ on Quantitative Easing

This report on a Chinese rating agency downgrade of U.S. debt seems to be the cause of the (slight) selloff.   It is quite ironic in terms of the Irish piece I posted today.  Frankly, it's a gas that the U.S. still has AAA credit since it is spending like mad, with no end in sight, and no credible plan to take care of long term obligations other than for the Fed to monetize debt.  Which if any other country offered as a roadmap would send them to "Argentina" status right quick.  The power of the reserve currency!

To be fair, this will probably be forgotten by tomorrow (or in 30 minutes if the infamous SPY futures buyer shows up!) but for those of us detached from the Matrix is nice to see someone, somewhere in the world actually cares about reality.   Not that China can do much about it at this point, because we are attached at the hip - they have the jobs, and the production, and the exports, and we send them cute pieces of paper in return.

As for the national credit rating... the U.S. rating agencies are captured and useless as we have seen the past decade (bundle 1000 subprime loans together and you get a 'AAA' security - magic!)... by the way, their charter to rate debt is based on government agency approval.  Does that conflict of interest sound familiar... do you think Moody's is going to downgrade the U.S.? haha.  Do you find it "convenient" Dagong was denied approval to be a competitor to the Moody's and Standard & Poor's of the world?  No one wants truth...

Bigger picture, we are setting up for a future currency war of some type.

[Mar 16, 2010: US, UK Move Closer to Losing AAA Rating's Moody's Says]
 [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?] 
[Apr 15, 2008: Could the US Lost its AAA Rating?]
[Nov 12, 2008: CNBC Europe - USA May Lose its AAA Rating]
[Mar 29, 2009: CNNMoney: Should USA Still be AAA?]


Via Bloomberg:

  • China’s Dagong Global Credit Rating Co. reduced its credit rating for the U.S. to A+ from AA, citing a deteriorating intent and ability to repay debt obligations after the Federal Reserve announced more monetary easing.
  • The credit outlook for the U.S. is “negative,” as the Fed’s plan to buy government debt will erode the value of the dollar and “entirely encroaches” on the interests of creditors, analysts at Dagong, one of China’s five official ratings companies, said in a statement. 
  • The U.S. is rated Aaa and AAA by Moody’s Investors Service and Standard Poor’s Corp., the highest credit ratings of the New York-based companies.  (shocker)
  • The downgrade for the U.S. “reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment,” analysts Lu Sinan and Du Mingyan wrote in the statement. “The serious defects in the U.S. economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency.”
Of course, being the narcissistic folk we are... we denounce anything the Asians do because its either political, or they are not creative, or they are just copying us... what do "foreigners" know anyhow?  
  • "The general market perception is that there’s a risk that the Chinese rating agency is playing a bit more political game than providing independent analysis,” said Ian Lyngen, a government bond strategist in Stamford, Connecticut, at CRT Capital Group LLC, in a telephone interview. “I don’t think it has the same ramification as a downgrade by mainstream rating agencies such as S&P and Moody’s. That said, the reasons that the credit rating of the U.S. may come under pressure are obvious to most people."
But take a step back, and any thought that Japan and the U.S. should be rated higher than countries that actually try to pay their bills, is a bit of a laugh.
  • Dagong, seeking to become an alternative to S&P, Moody’s and Fitch Ratings, ranks China’s debt higher than that of the U.S. and Japan, citing widening deficits in the developed world. 
  • Global ratings methodology is “irrational,” Dagong Chairman Guan Jianzhong said in July, and “cannot truly reflect repayment ability.”
  • In September, the Securities and Exchange Commission denied the application of Dagong to become a Nationally Recognized Statistical Rating Organization in the U.S.

See no evil,. hear no evil.


Here is the story from Xinhuanet.com

There is definitely some hyperbole here... the U.S. can't default technically so there is no solvency issue.  It can print as much money as needed.  That doesn't mean it should, or it's a good thing, but unless the world abandons the dollar it can print as many as needed... until the world someday says 'no mas'.  (Or its own citizens are crushed under their "Weimar" money)  That's a long ways away.

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