Aug 3, 2011
As was predicted last week, China’s rating agency Dagong, unlike its worthless western counterparts, has come through on its threat to downgrade the US in the event a subpar debt ceiling deal was hammered out. As Xinhua reports, ‘Dagong Global Credit Rating Co. said Wednesday it has cut the credit rating of the United States from A+ to A with a negative outlook after the U.S. federal government announced that the country’s debt limit would be increased.” Confirming that not being branded a NRSRO is the only thing that allows a rater to still think straight (and not in terms of lost client revenue if one goes ahead and tells the truth), Dagong’s decision was spot on: “The decision to lift the debt ceiling will not change the fact that the U.S. national debt growth has outpaced that of its overall economy and fiscal revenue, which will lead to a decline in its debt-paying ability, said Dagong Global in a statement.” So while Moody’s, which is now certified as the laughing stock of the sheep herd (sorry Mark Zandi, you will never be promoted to anything in this administration – we promise you), pretend that all is well and that the only thing better than $14.3 trillion in debt is $16.8 trillion, China demonstrates what happens when a rating agency actually knows how to do addition and/or long division.
And just to make sure that China’s intentions are (once again) very clear, the PBOC earlier said that is will continue diversifying its reserve assets and will “closely observe” the implementation of U.S. debt-limit agreement, welcoming the law as ensuring the market functions effectively and investing in Treasuries as safe. The odd sentence out was this: “China will also try to strengthen risk management and minimize effect of fluctuations in global financial markets on its economy.” Is the PBOC in the process of implementing a MOVE vol threshold for its bond holdings? It would be interesting if China’s dumping of Treasurys is directly proportional to the amount of HFT algos trading them. Then again, that is one sure way of eliminating the high frequency parasites from any market once and for all…
The U.S. House of Representatives on Monday approved legislation to raise the U.S. debt limit by at least 2.1 trillion U.S. dollars and cut federal spending by 2.4 trillion U.S. dollars, one day before a threatened default.
The downgrade is a result of fights between U.S. political parties over debt issues, which reflects the government’s inability to completely solve the debt problem, said Dagong Global.
The interests of the country’s creditors are short of systematic protection both politically and economically, said the agency.
China is by far the largest holder of U.S. debt, with holdings amounting to 1.15 trillion U.S. dollars as of the end of April.
Dagong announced last month that it had put the U.S. credit rating on negative watch for a possible downgrade on expectations of a long-term economic recession in the world’s largest economy, partially caused by its economic governance and policies.
Dagong downgraded the U.S. rating from AA to A+ in November of last year after the U.S. government announced a second round of quantitative easing.
The agency said the approval to raise the debt ceiling indicated that there will not be any positive changes in factors that will influence the country’s debt-paying ability in the long run.
And elsewhere, from the PBOC, google translated of course.
People’s Bank of China Governor Zhou Xiaochuan accept the “Financial Times” reporter, on August 2, U.S. Congress passed the “2011 Budget Control Act,” answered a reporter’s question.
Governor Zhou Xiaochuan said, we note that on August 2, U.S. Congress passed the 2011 Budget Control Act, the debt ceiling increase long-term deficit reduction plan and the development progress. We welcome this. For details of the bill and phased implementation process, we will further study and close attention. In recent years, Sino-US strategic economic dialogue (S & ED) under the framework of U.S. financial officials to maintain effective communication and mutual understanding.
U.S. Treasury bond market is the world’s leading investment and trading products, the U.S. Treasury market volatility and uncertainty will affect the international monetary and financial system stability, and drag the global economic recovery. We hope the U.S. government and Congress from their own and global interests, adopt responsible policy and practical measures to properly deal with debt problems, protect the safety of U.S. treasury bonds and the market run, maintaining global investor confidence, to achieve a strong consensus in the G20, sustainable and balanced growth.
From the domestic point of view, we will take effective measures to maintain stable and rapid economic growth, preserve our economic and financial security. Foreign exchange reserve management will continue to adhere to the principle of diversification, strengthen risk management, minimize volatility in international financial markets, the negative impact on me.
This article was posted: Wednesday, August 3, 2011 at 3:16 am