Skip to comments.China Just Downgraded America
Posted on 10/18/2013 5:50:34 PM PDT by RC one
China's credit rating agency Dagong has downgraded the U.S. rating from A to A-.
"The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and GDP remains unchanged," they warned after President Obama signed a deal to end the government shutdown and raise the debt ceiling.
"For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal governments solvency. Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future."
Dagong is not recognized by the SEC, and it does not have the influence of the big three: S&P, Moody's, and Fitch.
Not many people outside of China really follow Dagong.
(Excerpt) Read more at businessinsider.com ...
On October 16, 2013 EST, the U.S. Congress approves the resolution to end the partial government shutdown and raise the debt ceiling. By such means the U.S. Federal Government can avoid the default crisis for the moment. However the fundamental situation that the debt growth rate significantly outpaces that of fiscal income and GDP remains unchanged. For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal governments solvency. Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future. In light of these facts, Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as Dagong) decides to downgrade the local and foreign currency credit ratings of the U. S., which has already been on the negative watch list, to A- from A, maintaining a negative outlook. The rationale that supports the conclusion is as follows:
The partial U.S. federal government shutdown apparently highlights the deterioration of the governments solvency, pushing the sovereign debts into a crisis status. The U.S. federal government announced its shutdown on Oct. 1, 2013, a radical event that reflects the liquidity shortage aroused by depleting stock of debts without the increase of new debts, directly resulting in the federal government lack of the funds for its normal function. The partial U.S. government shutdown is an inevitable outcome of its long-term failure to pay its excessive debts. During the fiscal years from 2008 to 2012, the ratio of the federal governments stock of debts to fiscal income increased from 4.0 to 6.6. Under such circumstances, the federal government that can hardly sustain its own expenses, not mentioning collecting reliable income to cover its huge amount of debts. Substantial decrease of the U.S. governments solvency is proven by this shutdown incident, which pushes the federal government into a crisis position of debt cliff and default.
2. Since the outbreak of the U.S. debt crisis in 2008, the deviation between the federal government's sources of debt repayments and the countrys real wealth creation capacity has been constantly broadened. The huge amount of government debts that lack the basis of repayment always stands on the brink of default, and this situation is difficult to change in the long term. The federal government debt stock increased by 60.7% between 2008 and 2012 when the nominal GDP increased by only 8.5% while the fiscal income decreased by 2.9%, which indicates that fiscal income is losing its means as the primary source of debt repayments. Because of the fact that the federal government now depends highly on borrowing new debts to repay its old ones, vulnerability of its debt chain is accumulated so that technically debt default may occur at any time. For the fundamentals of government debt repayment condition will not be essentially improved, the federal government's debt cliff will persist in the long term.
3. Liquidity has been continuously injected into international financial markets from the U.S., which indirectly plays a key role in combating against the risk of government default. This implicit debt default behavior infringes upon the benefits of creditors. In order to avoid the debt default caused by the lack of debt repayment sources such as fiscal incomes, the U.S. government has been taking advantage of the international currency dominance of the U.S. dollar to monetize its debts and has been taking quantitative easing monetary policy to maintain its government solvency since 2008. The devaluation of the stock of debts hereby directly damages the creditors interests. Dagong estimates that the depreciation of the U.S. dollar caused a loss of USD628.5bn on foreign creditors over the years of 2008 to 2012.
4. The debt ceiling has been extended continually, increasing the total amount of the federal government debts. 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 fact that the debts grow faster than the fiscal incomes will further impair the federal governments solvency. Ever since Obamas inauguration in 2009, the U.S. Congress has extended the debt ceiling for five times, reaching a total volume of USD5.1tn. This further raise of the debt ceiling shows the governments incapability of improving its solvency by improving the basic economic and fiscal elements.
5. The Democrats and the Republicans of U.S. do not have a consistent strategy target to solving the sovereign debt problem. As the issue of paying sovereign debts falls into a tool that the parties make use of to realize their own interests, the political environment is unfavorable for eliminating the risk of its sovereign debt default in the long term. The recurrence of the bi-partisan conflict over debt ceiling once again reveals the U.S. superstructures incapacity to solve national debt crisis. A debt crisis evolves into a political crisis, which in turn exacerbates the debt crisis. Such political environment over debt repayment renders the dim and pale prospect of the U.S. federal governments solvency.
Do you do take-out and can I get an egg roll with it?
“The fundamental situation that the debt growth rate significantly outpaces that of fiscal income”
But, but, but . . . ABCCBSNBCCNNPMSNBC told us that credit downgrades would be caused by NOT borrowing as much money as the Shuck-and-Jiver in Chief wanted, because we would “default”. So we raised the debt ceiling and we’re getting downgraded anyway?
You mean not being able to pay the debt back enters into the picture?
The chinks can go take a long walk off a short pier.
I agree. They can stop financing our welfare state anytime now. Bring it on.
Is that related to reruns of Da Gong Xiao?
(probably not a laughing matter)
Has Jay Carney had one word to say about this? Hell No! Why is that? They’re going to avoid this like the plague. We need them to address it.
So the corrupt and bloated federal government controls the SEC, the SEC rates the CRAs, and the CRAs give the Feds and their bonds a thumbs up.
What could possibly be wrong.
Interesting what message you take from this article.
(And we wonder why we are in so much trouble)
Picky picky picky! It's your money we're borrowing to pay you back for the money we borrowed from you. Isn't your money any good?
I agree with you.
However we need to bring back American companies, from China.
Why is Ta-kung kuo-chi tzuh-sin p’ing-ku yu-hsien kung-szu taken seriously?
because they’re speaking on behalf of the Chinese government which happens to be the largest foreign holder of US debt securities and because it illustrates why we are right and Obama and Company are wrong with regards to just about everything. Thanks for asking.
I'm not an expert, but this sounds like a good thing to me.
China kept the yuan artificially low for several decades.
Raise the yuan value, and suddenly all those cheap imported goods are no longer cheap.
I wouldn’t dignify them with the title “Chinese government”, myself. These guys are a carbon copy of Obama, to be sure.
the company was established in 1994, following approval by the People's Bank of China and the State Economic and Trade Division of the People's Republic of China.
In 2010, the United States SEC rejected an application by Dagong to enter the US marketplace, on the grounds of its inability to control a transnational corporation. This has been criticsed as a double standard, on the grounds that this was an unprecedented standard that was not previously applied to three other non-US credit ratings agencies already operating.
They are clearly an arm of the Chinese government and we clearly deny their validity because we can't control them.
Or refuse to control them.
Nixon really did us in on that score.
What an odd perspective.
China sees things more clearly than our own politicians and citizens, and you are blaming THEM?
In my opinion, the financial situation America is in is as bad as described by the Chinese.
In my opinion they are simply stating the truth, and believe me I am no fan of the Chinese and their corrupt and dishonest approach to business.
What you said.
Yes, they are quite aware of the consequences of large scale idiotic monetary policy.
When a guy lying in a gutter with an empty whiskey bottle says “don’t squander your money on booze”, he might know of what he speaks.
That was my take too Gabrial.
Strangely, the Japanese are withholding
comment. They are sitting a similar
amount of our guberment debt.
It’s a house of cards!
“A country boy can survive.”
(Chanting) USA USA USA /S
At least they’re not calling us “capitalist running dog lackeys” any more.
So why don’t these nitwits stop loaning our idiot government gazillions and stop selling their cheapo slave-labor made garbage to us?
Geesh. More lying commies.
We took the King’s Coin, now we do the King’s Bidding.
If there is no choice, I figure how to do without it.
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