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China’s Rating Agency Downgrades US Credit, Rips Debt “Deal”

China’s Dagong rating agency has downgraded the United States credit rating from “A” to “A-” and maintained its “negative outlook” on American debt despite Democrats and fiscally liberal Republicans reaching a deal this week to extend government borrowing. And while the American rating agencies remain submissive to their government overlords…

China’s Dagong rating agency has downgraded the United States credit rating from “A” to “A-” and maintained its “negative outlook” on American debt despite Democrats and fiscally liberal Republicans reaching a deal this week to extend government borrowing.

And while the American rating agencies remain submissive to their government overlords (like the country’s mainstream media), China is once again telling it like it is.

“The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and GDP remains unchanged,” the agency stated in its release. “For a long time the U.S. government (has maintained) its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency. Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.”

The Dagong statement – one of the most compelling indictments of American fiscal policy we’ve ever read – cites five key “rationales” for the downgrade.

They are: 1) “The deterioration of the government’s solvency,” 2) a broadening gap between “the federal government’s sources of debt repayments and the country’s real wealth creation capacity,” 3) The “depreciation of the U.S. dollar” due to the Federal Reserve’s ongoing quantitative easing (a.k.a. money-printing) policy, 4) The “continual extension” of the debt ceiling, and 5) A political climate which is “unfavorable for eliminating the risk of its sovereign debt default in the long term.”

“The Democrats and the Republicans of U.S. do not have a consistent strategy target (for) solving the sovereign debt problem,” the agency states.

That’s for damn sure …

And while the American public has been conditioned in recent years to think constant debt ceiling increases are the only way to avoid “catastrophic defaults,” the Dagong release points out the opposite is true.

“In order to avoid the sovereign debt default, it becomes an inevitable choice for the U.S. government to repay its old debts through raising new debts,” the release notes. “The fact that the debts grow faster than the fiscal incomes will further impair the federal government’s solvency. Ever since (Barack) Obama’s inauguration in 2009, the U.S. Congress has extended the debt ceiling for five times, reaching a total volume of $5.1 trillion. This further raise of the debt ceiling shows the government’s incapability of improving its solvency by improving the basic economic and fiscal elements.”

Exactly …

In years past this website would insert a line in our coverage imploring American policymakers to get their act together and “take meaningful action on the debt before it was too late.” Not anymore.

It is officially too late …

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35 comments

Billy K Mulligan October 17, 2013 at 8:44 am

We wouldn’t have to print money if but but not for China’s illegal trade practices though quantitative easing serves other interests as well. Maybe this is a good thing; hopefully China will stop lending us money. Turn off the credit, the spending will stop.

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I'm with Stupid October 17, 2013 at 9:29 am

“We wouldn’t have to print money if but but not for China’s illegal trade practices”

lol….yes…the Chinese are forcing our government to overspend.

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Guest October 17, 2013 at 1:39 pm

Not BS, is a fact. devaluation of the Dollar boosts exports, which is in retaliation for Chinese dumping. It does make it easker to spend but keeping the Dollar low to support exports is the primary mptivation of the Fed policy and has been since Reagan was President.

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I'm with Stupid October 17, 2013 at 1:51 pm

Obviously you meant that response to Frank.

You have yet to explain why devaluation via inflation demands deficit spending.

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Billy K Mulligan October 17, 2013 at 2:27 pm

That wasn’t my comment though I agree with the comment from Guest. The devaluation of the dollar is a key component of our export and domestic manufacturing policy. I’m sure I did not phrase my comment as precisely as I should have though I don’t think I actually said “devaluation via inflation demands deficit spending”. Printing money does not demand deficit spending. It does, however, make it easier to deficit spend.

Billy K Mulligan October 17, 2013 at 2:27 pm

That wasn’t my comment though I agree with the comment from Guest. The devaluation of the dollar is a key component of our export and domestic manufacturing policy. I’m sure I did not phrase my comment as precisely as I should have though I don’t think I actually said “devaluation via inflation demands deficit spending”. Printing money does not demand deficit spending. It does, however, make it easier to deficit spend.

Frank Pytel October 17, 2013 at 9:44 am

BS

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venomachine October 17, 2013 at 9:01 am

Of course China is downgrading our rating. That benefits their return on treasury notes.

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? October 17, 2013 at 10:42 am

The art of loan sharking is not easily mastered, but the Chinese have the shrewdness of the mafia on their side.

They’ll learn exactly how much to squeeze us as time goes on until it becomes apparent the promises our government has made to millions can not be fulfilled and/or hyperinflation sets in.

Hopefully there won’t be too much suffering before a traditional default.

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venomachine October 17, 2013 at 9:01 am

Of course China is downgrading our rating. That benefits their return on treasury notes.

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Cory October 17, 2013 at 9:02 am

You’re great at acting like you know about stuff that you don’t understand. Why don’t you get back to your domestic violence and leave adult work to adults.

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Cory October 17, 2013 at 9:02 am

You’re great at acting like you know about stuff that you don’t understand. Why don’t you get back to your domestic violence and leave adult work to adults.

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Economics for Dummies October 17, 2013 at 9:11 am

China got themselves into a pickle that they won’t be able to easily escape without massive harm.

“A-” is a laughable downgrade. ZIRP type policies can’t go on forever and then the US is cooked goose.

http://www.youtube.com/watch?v=EW5IdwltaAc

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Centrist View October 17, 2013 at 9:25 am

The bond market and interest rates is their choice of Weapon of Mass Destruction.

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Fruit of the BOOM October 17, 2013 at 9:28 am

indeed, and truthfully the wisest of all weapons!

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? October 17, 2013 at 9:30 am

They won’t even have to fire a shot. Our pols gave them the hammer with which the Chinese bonk us over our heads.

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Fruit of the BOOM October 17, 2013 at 9:27 am

Welcome to the new age…where China and Russia continually pimp smack us, and we take it on the chin because we know they are right. Friggin disgusting.

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Robert October 17, 2013 at 10:06 am

You do realize that Japan is #1 in owning our debt. China is #2.

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? October 17, 2013 at 11:02 am

They are very close together, but last time I checked China was at 1.3 Tril and Japan 1.1

Do you have a link?

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Smirks October 17, 2013 at 11:10 am

The breakout of foreign-held debt shows that China was the largest holder, at $1.276 trillion (as of June 2013). Japan came in second, at $1.108 trillion.

http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm

So unless something has changed in the last few months, you should be correct, ?.

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Robert October 17, 2013 at 5:36 pm

Ok. Seems they shift back and forth. About 3 months ago, Japan was #1.

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U wong again wound eye! October 18, 2013 at 12:36 pm

Nope.

MaceSucks October 17, 2013 at 10:11 am

The biggest owner of our national debt is us – American individuals, institutions, and the the Social Security Trust fund.

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sandnomad October 17, 2013 at 11:30 am

Thanks for adding some valid information to this article. We are truly indebted to ourselves (aka the taxpayer), to the tune of almost “12” trillion dollars, and the biggest holder of debt, which some refer to as IOU’s or T-Bills, is the Social Security Trust Fund, whose name in itself is a misnomer. Here’s just a couple of the many links: http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm, and http://www.pewresearch.org/fact-tank/2013/10/09/5-facts-about-the-national-debt-what-you-should-know/. The Chinese have nothing whatsoever to complain about, but the American Taxpayer has good reason to be irate.

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Nölff October 17, 2013 at 11:04 am

Downgrade us and put pee pee in our Cokes.

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Jesus H. Christ! October 17, 2013 at 11:20 am

One meaningful action would be to raise taxes on high incomes. But you oppose that. Tells me you aren’t serious about reducing the debt.

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Squishy123 October 17, 2013 at 12:03 pm

I’m afraid that even an A- is being generous.

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? October 17, 2013 at 1:09 pm

“”[P]oliticians in Washington have done nothing substantial but postponing once again the final bankruptcy of global confidence in the U.S. financial system,” government-run Chinese news agency Xinhau said.

Hmmm, someone’s smelling blood. That’s uncharacteristically blunt for the Chinese.

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idcydm October 17, 2013 at 2:09 pm

lollin, lollin, lollin down the livel.

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? October 17, 2013 at 3:14 pm

Ok…is that the Chinese version of “Rollin’ on the river”/Proud Mary?

lol…if I’m right I’m going to stretch and say you are suggesting that they will take the T-bond hit and sell us down the river?

Anyway, I like the CCR version better than Tina Turner’s.

:)

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SCBlues October 17, 2013 at 1:45 pm

Are all of you Tea Baggers happy yet? All we lost was an estimated $24 Billion during this charade . . . Tea Baggers suck big time!

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JJEvans October 17, 2013 at 1:48 pm

All the politicians suck.

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Elfego October 17, 2013 at 4:56 pm

Now they can raise the interest on the money they loan America while our government devalues our savings.

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tomstickler October 17, 2013 at 10:17 pm

Shamelessly stealing a bit from “Beat the Press”:

The move by the Chinese and Japanese governments away from holding Treasury debt is a longstanding official policy goal of both the Bush and Obama administrations. Both have complained about currency “manipulation” by these governments. The way these governments manipulate their currencies is by buying up U.S. government bonds. This keeps down the value of their currency against the dollar, making their goods relatively more competitive in international markets.

If China and Japan bought fewer U.S. government bonds their currencies would rise against the dollar, making U.S. goods more competitive and increasing net exports. This could lead to millions of jobs in the United States.

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euwe max October 18, 2013 at 10:54 am

What do they think? That we’ll become a deadbeat nation or something? Those Chinese act like it’s *their* money!

Reply

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