Chinese Credit Rating Agency Downgrades US Debt

US-based credit ratings agencies S&P and Moody’s have been furiously downgrading the sovereign debt of eurozone nations such as Ireland and Greece.

Now, it is the stability of US sovereign paper that has been questioned. Chinese rating agency Dagong Credit has cut it from from AA to A+.

“The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency. The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S. Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government’s intention of debt repayment. Analysis shows that the crisis confronting the U.S. cannot be ultimately resolved through currency depreciation. On the contrary, it is likely that an overall crisis might be triggered by the U.S. government’s policy to continuously depreciate the U.S. dollar against the will of creditors.”

QE2 has found another enemy.

The decision by the rating agency is unlikely to change the holdings of US Treasuries by the People’s Republic. But, it is another sign that there is some worry within the global capital markets about the American deficit and debt, and that concern grows daily. The core problems which face the US economy have continued to get worse, not better.

Douglas A. McIntyre