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China Calls Our Bluff: "The US is Insolvent and Faces Bankruptcy as a Pure Debtor Nation but [U.S.] Rating Agencies Still Give it High Rankings"
America's biggest creditor - China - has called our bluff.
As
the Financial Times notes,
the head of China's biggest credit rating agency has said America is insolvent and that U.S. credit
ratings are a joke:
The head of China’s largest
credit rating agency has slammed his western counterparts for causing
the global financial crisis and said that as the world’s largest
creditor nation China should have a bigger say in how governments and
their debt are rated.“The western rating agencies are
politicised and highly ideological and they do not adhere to objective
standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating,
told the Financial Times in an interview.***
He
specifically criticised the practice of “rating shopping” by companies
who offer their business to the agency that provides the most favourable
rating.In the aftermath of the financial crisis “rating
shopping” has been one of the key complaints from western regulators ,
who have heavily criticised the big three agencies for handing top
ratings to mortgage-linked securities that turned toxic when the US
housing market collapsed in 2007.“The financial crisis was
caused because rating agencies didn’t properly disclose risk and this
brought the entire US financial system to the verge of collapse, causing
huge damage to the US and its strategic interests,” Mr Guan said.Recently,
the rating agencies have been criticised for being too slow to
downgrade some of the heavily indebted peripheral eurozone economies,
most notably Spain, which still holds triple A ratings from Moody’s.There
is also a view among many investors that the agencies would shy away
from withdrawing triple A ratings to countries such as the US and UK
because of the political pressure that would bear down on them in the
event of such actions.Last week, privately-owned Dagong
published its own sovereign credit ranking in what it said was a first
for a non-western credit rating agency.The results were very
different from those published by Moody’s, Standard & Poor’s and
Fitch, with China ranking higher than the United States, Britain, Japan,
France and most other major economies, reflecting Dagong’s belief that
China is more politically and economically stable than all of these
countries.Mr Guan said his company’s methodology has been
developed over the last five years and reflects a more objective
assessment of a government’s fiscal position, ability to govern,
economic power, foreign reserves, debt burden and ability to create
future wealth.“The US is
insolvent and faces bankruptcy as a pure debtor nation but the rating
agencies still give it high rankings ,” Mr Guan said.***
A
wildly enthusiastic editorial published by Xinhua , China’s official
state newswire, lauded Dagong’s report as a significant step toward
breaking the monopoly of western rating agencies of which it said China
has long been a “victim”.“Compared with the US’ conquest of the
world by means of force, Moody’s has controlled the world through its
dominance in credit ratings,” the editorial said...
China
is right. U.S. credit ratings have been less than worthless. And - in
the real world - America should have been downgraded to junk. See this,
this,
this,
this,
this,
this,
this,
this
and this.
China
is not shy about reminding the U.S. who's got the biggest pockets. As
the Financial Times quotes Mr. Guan:
“China is
the biggest creditor nation in the world and with the rise and
national rejuvenation of China we should have our say in how the credit
risks of states are judged.”
Might Makes Right
Economic Collapse
Indeed, Guan is even dissing America's
military prowess:
“Actually, the huge military
expenditure of the US is not created by themselves but comes from
borrowed money, which is not sustainable.”
As I've
repeatedly shown,
borrowing money to fund our huge military expenditures are -
paradoxically - weakening our national security:
As
I've previously pointed
out, America's military-industrial complex is ruining our economy.
And
U.S. military and intelligence leaders say that the economic crisis is
the biggest national security threat to the United States. See this,
this
and this.
[I]t
is ironic that America's huge military spending is what made us an
empire ... but our huge military is what is bankrupting us ... thus
destroying our status as an empire ...
Indeed, as I pointed
out in 2008:
So why hasn't America's
credit rating been downgraded?Well, a report
by Moody's in September states:
"In superficially
similar circumstances, the ratings of Japan and some Scandinavian
countries were downgraded in the 1990s.
***
For reasons
that take their roots into the large size and wealth of the economy and, ultimately, the US military power,
the US government faces very little liquidity risk — its debt remains a
safe heaven. There is a large market for even a significant increase
in debt issuance."So Japan and Scandinavia have
wimpy militaries, so they got downgraded, but the U.S. has lots of
bombs, so we don't? In any event, American cannot remain a hyperpower
if it is broke.
The fact that America spends
more than the rest of the world combined on our military means that we
can keep an artificially high credit rating. But ironically, all the
money we're spending on our military means that we become less and less
credit-worthy ... and that we'll no longer be able to fund our military.
The
Scary Part
I chatted with the head of a small investment
brokerage about the China credit rating story.
Because he gives
his clients very bullish,
status quo advice, I assumed that he would say that China was wrong.
To
my surprise, he simply responded:
They're right.
What's scary is that China knows it.
In other words,
everyone who pays any attention knows that we're broke. What's scary is
that our biggest creditor knows it.
Tricks
Up Their Sleeves?
China has been threatening
for many months to replace the dollar as the world's reserve currency
(and see this).
And China, Russia and other countries have made a lot of noises about
replacing the dollar with the SDR. See this
and this.
Gordon
T. Long argues
that the much talked about gold
swaps are part and parcel of the plan to replace the dollar with
the SDR. Time will tell if he's right.
China, of course, is not without its own problems. See this and this.
In related news, Germany's biggest companies are starting to shun Wall Street as too risky.
»
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How many people in the western world can name the Prime minister of India? Which happens to be the largest democracy in the world. I bet they all know the name of our President. How many can give me the name of Chinas largest city? Economic Darwinism being flagged for his comments only proves his point and is a sad statement of the ignorance that exists in the western world..
China is only a threat to US because we allow them to be by our shitty trade policies. We tarriff all the crap they send us at 500%, we would produce it cheaper and employ our own folks, negating their balance of trade/Treasury buying power.
Unfortunately to do that, we would have to bankrupt them by defaulting on the debt we owe them.
Keep in mind that defaulting on sovereign debt is the norm, not the exception. The last 50 years with the U.S. has been the exception.
Perhaps China is starting to wake up to that. IMO, it's obvious that default is only a matter of time at this point.
Speaking about US military, for the last 25 years, I worked for the major US defense corporations. My major customer was USAF.
With time, I grew into a program manager for major defense programs.
We always call ourselves "Defense Integrators". These are exactly who Lockheed-Martin, Boeing, Raytheon, Northrop Grumman, General Dynamics are. We use technologies and commercial infrastructure and capabilities to develop and build defense systems.
Now, US industrial complex (thanks most of all to B. Clinton) is going down in a tailspin. As the result, US cannot afford any more the most complex and advance firefighters and other systems to maintain air-superiority.
Consequently, the US air-superiority will be lost in the next 3-5 years. As a result, the US military will undergo a transformation similar to the Soviet-Russian transformation in the last 15-20 years, i.e., a lot of nukes and very limited combat capabilities.
PS
Back before the WWII, militarily America was not a big power. But, the US huge industrial capabilities have transformed it into a military and economic superpower. Now, everything is in a reverse.
Wow, caconhma, you've been part of that crowd and you are still ignorant that the Clinton and Bush administrations transferred (actually pretty much gave away for free) the most advanced military technology to China?
Can you spell c-l-u-e-l-e-s-s????
Can you really be that stupid (and stupid is the operative term here, as we all start out ignorant, but those who choose to remain ignorant after a certain age are hopelessly stupid!)?
Hang in there Sarg... the same people that have voted the idiots in... are the same ones who used to scream "Drill! Baby!! Drill!!!" they have no concept of who built or who owns China... they still believe that China is out to get us, when China now imports more than it exports... just like us. The facts need not be pointed out Sarg to them as they can not comprehend them, they have no desire for the facts and what they equal... they want to sqawk like women about how they feel, due to thier entire lack of comprehension of the facts...
So, Kudos to you fine sir and you never mind those idiots.
It's call technology transfer and as soon as they are done with you they will throw you out like a whore that is past her prime...
insightful - thanks.
Another China is the future crowd. All I can tell you son is enjoy your fantasy while it lasts. All your PhD buddies over in China will be back when the paychecks dry up, thats when it will dawn on them that they were just mercenaries all along. You and your buddies have no real future in China because you are not Chinese - you can only be a mercenary.
When oil stabilizes at $125/b, who you gonna call?
Maybe it's changed in the last 20 years in that area since I've been to Bejeing with regards to the viewpoint of Chinese of "yangguizi" but somehow I doubt it. Those who go over there are being used the same way companies who transfer technology and knowhow are being used. Once they have drained them, if the US has problems like a bond default, their assets will be seized as collateral for all the debts outstanding because then it will become "One mind, One Heart, One Wallet, China's")
The intellectual elite that have whored themselves out over there are wonderful propaganda tools now and who knows later on? If they are Chinese Americans and can keep their mouths and viewpoints in line with the authorities. No problem. If they are not, they have a problem as they drift farther away from this country. They are not free over there.
Those who complain about rights and freedom over here don't know how good they have it compared to China. This blog would not be allowed in China if it focused on China's weak points like it does the US's now. We can still be self-critical and not get shutdown , imprisoned or shot. There it's quite different.
We have made some serious mistakes that will cause us deep pain but don't believe for a second it won't cause China pain either since their rapid growth has been based on stealing , buying and bribing their way into the 21st century and then profiting from it by selling the end product back to us on dollars they loaned to us and paper profit they have made from those loans.
As a parallel recall the late 80s and early 90s when the Japanese where in the same position as they went through their twin bubbles. They too had huge foreign reserves. I couldn't believe the disdain they had for us when I went over there and visited with Japanese who don't leave the country. The racism was outright and startling. We felt inferior enough here as we sent over groups of people to learn their management techniques who ironically enough, they learned from Americans sans group exercise in the morning and emphasis of group over individual. Tokyo was so expensive the salary man, their middle class, couldn’t afford anything there. They had to live with their parents or live in southern Japan and take the bullet train to Tokyo. Right then you could the fractures of those bubbles. As an example: A woman paid 10 million dollars to have her small driveway widened by one foot.
Then the acquisitions started as it seemed everyone wanted to sell America to the Japanese who eagerly bought landmark properties with low interest loans borrowed against inflated stock holdings and real-estate holdings. Then their bubbles burst (Nikkei 40,000) and many of the same Americans bought back the same properties from the banks that has to foreclose over there for a fraction of what they sold them for or current market value. It was pretty amusing how fast we jettisoned everything Japanese as their economy sunk like a rock.
It was also ironic as we lectured them on having their banks come clean on their bad loans, as we started into our stock bubble and full employment was rocking again as Japan sunk deeper and deeper.
There are many parallels today. To say that China still doesn't depend on us and that us going down would be a huge cause for celebration for them is false in the extreme.
It never seems to fail when a country or a company starts to see itself as superior and is seen as superior to all , there will be Americans who rush to be "a part of the next great thing" only to find it really isn't the next great thing.
It’s like chasing a stock. The real money has already been made. This party is almost over.
We'll see you when you get back , if you make it back, and good luck getting that job back.
China has been nothing more than a cheap labor farm for western industry but since they are peons all they make is crap that almost works when it is new and is doomed for the trash can in the short order. I go out of my way and will spend any amount more to get a product that is not made in China whenever possible.
What you are seeing now in China is as good as it gets - a crap culture making crap products.
In short time, China will become an aged country like Japan but still wholly undeveloped and poor - and that will be that - mark my words. When that time comes all the brilliant economists that are praising China now will be analyzing the "great failure" of China and saying I told you so.
As an example: A woman paid 10 million dollars to have her small driveway widened by one foot.
Exactly. I remember this. Everyone talking about Japan taking over the world and then along came the Plaza Accord. Think it can't happen again?
China also has demographic problems and thats a very serious issue that will take up a lot of their capital instead of taking over the world as everyone seems to think is right around the corner.
I suppose that would make you a traitor to the US in this undeclared war. It would also make every single company that has all of their manufacturing done in China (such as Apple)and those who have turned their capital and design work over to China and consequently weakened the US, strengthening China traitors as well.
The question though is not what you and the companies that have made this happen are, because it is clear. The question is whether you are you "right" in doing so. The US government and the banks have clearly sold out the US people and one can argue that they are not deserving of the loyalty of the people...
... Seems the Sun Tzu comment may be right on. China is winning the war because the people are giving up on the elitist US banks and government. The logical conclusion is that the "so called" leaders of the fading empire will do something desperate and people such as you will more than likely be forced to make a choice some day.
Excuse me now, I have to watch American idol reruns before heading off to the casino later.
China? Pleez. China is a crack whore complaining about the quality and amount she gets supplied by the USA. In too deep, yet needs US.
Keep using, China. Send us your plastic Walmart stuff and loan us money, bitch.
Why is this junked? Dude has a point. Without customers, ie, the west, what kind of massive 'powerhouse' can your manufacturing be? Eventually labor everywhere hits price parity. It just takes a while for countries with large workforces, especially the ones that start out with totalitarian regimes, which cant even see themselves as hardcore tough in ten years (obviously they're afraid of something if they open up markets little by little.) China is a house of cards. Just like everyone else. Without customers to buy at western prices using western standard of living, china is fucked too. There is no free lunch, even if it's ordered by a dictator.*
*or paul krugman
So let me get this right, you moved from Ponzi scheme "A" to Ponzi scheme "B" and now the sun shines because over in China there is no corruption. For a parallel, we had a guy working with us whose father sent him to America because America was less corrupt than China - he is an engineer.
As for your last sentence, it is people like you who grossly underestimate the the skills and drive of many people in the U.S. Sure we have our problems, but many of us will not quit. Not everyone in U.S. sits around watching tv all day. Good luck in China, see you back here in two years.
+1,000
And to those far more sophisticated than this Sarah Palin supporter (brainy as this clown prob thinks she be), Japan and Thailand have far greater brain trusts than China, as we well-traveled munckins realize.
"Japan and Thailand have far greater brain trusts than China"
Yes yes bro, I can guess your brain is where your manhood should be. Got a little too much of "I lup Thailand, Ratchaphisek massage parlours frequented by white men seeking cheap booz and cheap love. Or maybe too much japanese AV downloaded by robo :)
What the hell does Palin have to do with this? You need to pay more attention to the posts on this site. There are those on the elites payroll, and those who are not. You need to start sorting your allies and enemies be those criteria, instead of the manufactured political dichotomy.
Did he hit a Nerve Rob? Go Team Abortion! Yayyyyyy!
+1
If China is so great, why do they steal 75% of their technology? Is it because the people are so smart? Sorry, my utopia does not include a carcophony of people coughing, sneezing and the sidewalks are gold, not plastered with lung butter.
In my book, propaganda is not that bad until you start believing in it.
Some people were so bosom fed with it they cant distinguish.
Lets retrace the story:
The US (and some other places) have grown richer and richer. As a consequence, more and more natural born people are no longer able to afford living in the ever richer growing place.
It is a bottom to top process, with people whose work output is the least valued the first to be excluded.
This is the primary cause of outsourcing jobs. You dont do smearing garage mechanics work in a marble palace.
As a result of this internal pressure, jobs were pushed outside the US.
Bottom to top process meaning that the less valorized jobs were the first to move outside. The flipping burgers kind of jobs. In the US mythology, these kind of jobs are losers'jobs. Nice coincidence as it helps to enduring the shipping away of jobs. Core US dont care. Losers are losers who must lose. So them being outcompeted by other people is nothing unusual.Even more, the very sign of the US running healthy.
But in the doing, the US is still growing richer and richer. And the internal pressure to outsource jobs is gaining momentum. The result is that now, jobs that should be relocated are no longer 'losers'jobs' but start to be gracious jobs like educated clerical jobs and stuff.
And this is where the story starts to be different. The fact these sectors of jobs meet the required criteria to be outsourced also comes with stripping a very different population from money making activity.
In all aspects, the Chinese are extremely wary of that. As a side effect, they were the nation that took the best advantage of the internal pressure to outsource the jobs.
As such, they have also concentrated the resentment of a certain part of the western world. Resentment they can experience on an every day basis as they are smeared at every opportunity and subjected to the western mob mind.
Everything points out they are ready to come at the top when outsourcing of lower middle class/middle middle class jobs will really kick in.
This time though, the danger is real. Even though the Chinese are not the cause of the outsourcing job phenomenum, if they start to benefit the most from it, they are going to anger the cherished segment of the US population, the middle class who could perceive it as a casus belli.
China should not be expected to perform well on the technology side until they are able to sustain the pressure coming with harbouring such kind of jobs.
This is what the power will shift to the East crowd does not get. They only want to consider that jobs will be outsourced because they meet a set of criteria, excluding the pressure resulting harbouring such jobs.
China will only take wings in the technology department (and some others) when their military and their supply network over the world is strong enough to resist the pressure.
Working the jobs of losing US is not a big deal. When a freshman has to finish his senior year in the top three to stand a chance to get a job (exceptional success), this will change the deal.
China is perfectly aware of that.
Others are also perfectly aware of that. For example, in Europe, they prefer to outsource lower tiers technological jobs toward newly introduced eastern european countries. As they are now part of the same gang, bullying is less easy. You dont go against Bulgarians who are white christian people, part of the same tribe as you could go against Chinese people. It would be difficult to masquerade a war on them as being something else than a war to exclude concurrents.
Until China has not reached the point of protecting themselves from the West, they wont do that well in the technology department. Even though they are intellectually and education structurally ready.
"In all aspects, the Chinese are extremely wary of that. As a side effect, they were the nation that took the best advantage of the internal pressure to outsource the jobs."
Agreed, but what happens when China's now minuscule middle class starts to blossom? The will go through the same problems we have. Our middle class is a great protagonist and a great antagonist. Perhaps that is when the multinational wars will start.
The same was true for the former Soviet Union.
This is the way how communist states are doing business.
As for China, now, they are a mixture of communism and fascism. It is a very deadly combination.
Sun Tzu: Keep your enemies viewing you as weak and disorganized. Wars are not won by he who fights best, rather by the one who accepts the enemies surrender without fighting.
The West will continue to underestimate the East. This is a deep seated Western belief that is "elitist" in nature. That everything Western is "better" than anything Eastern.
Western long range planning is short, with emphasis on the individual. Whereas Eastern long range planning is multi generational, with emphasis on the whole and the individuals effort being just a small part of that.
The West is just starting to come to the realization that the East is not just a 'paper dragon' but in fact holds all the cards in this poker game, despite the game being continually rigged by the West. China has said "enough is enough". This fact has come hard for the West to swallow, so that's why it's being force fed to us by China. As Julia would say, "Bon apitite!"
Some of the more libertarian elements within this community may not like what I have to say but perhaps the central reason for the wests dynamism was the constant tension between the executive princes and the monetary priesthood.
As most of us Know the priesthood has gained total control of the executive branch for at least 40 years ( assassination of Kennedy and the expulsion of De Gaulle.)
This has caused the entire political/economic body to atrophy and decay into a smelling corpse of pestilence.
I believe a true conservative fears total power within any one body as this breeds both contempt and decadence.
I personally do not recognize the label of conservatives as defined now in both America and Europe
It is time for the pathetic western executives to step aside and hopefully we can get a few princes of quality to challenge the priesthoods dominance in all things of substance.
All of you are idiots...
Who funded Chinas growth? who holds the Class "A" shares? of those companies... and only recently has China started to change its laws about who has a majority holding for in Country assets...
It now wonder abortion is the a favored topic of you people...
Spot on, JW n FL!
The truth is, I have absolutely no trouble in accepting this individual clown as on the level:
"One of the reasons I left (there was more than one) was that I became disillusioned. How can such a great group of investors, economists, and political analysts, get things so utterly and completely and (to me) obviously wrong?
I have now moved to Asia and am working at one of the largest asset managers in China."
It is complete and total douchebags like this guy quote above, clownish wonders all, who are the problem with Korporate Amerika today!
Completely amoral, completely unethical, and completely clueless.....
The brainpower is no where, but evenly distributed around the planet (as is serial killers). This idiot quoted wouldn't be expacted to know that, given his total lack of education and wonder at the world.
These are typical halfwits and lowbrows, who barely squeek by while flunking far too many tests, who fervently believe they are part of the "meritocracy"......
Sorry, I would have expected you would have understood that my comment was no inclusive of you... but my wording does lack... enjoy the furits of your labor and my God Bless you fine sir and all of yours.
Why so mad bro?
You call these guys stupid but you can't form an argument without attacking people? You seem to have just confirmed everything they were saying about a lot of people in America.
I've moved to China too,and have never regretted it once. If you could see whats going on at ground level here you would realise that they are not wasting the money they spend on a paper thin military, but rather investing in the futures of the whole population. SDR's or not..
my attack was not for the forward thinking, hard working persons here posting... it was directed at the idiots... all of them, I am sorry that my wording allowed for you to draw a logical conclusion that would have included you in my "all of you are idiots".
As long as we look at this as China VS America, we are missing the whole program. American history is replete with examples of immigrants imported to maintain low wage structures. We no longer import them, we export the work.
China and Russia making a run at the SDR is exactly what the elites want. Western Europe and America do not want to deal with the ramifications of failed fiat currency, so we let the "evil empires" do it for us and force our hand.
Google Preston Bush and his work in China back to 1928. Yes, that's right. This relationship has been developed over the last ninety years. Look at the memberships of the trilateral commission and Bilderbergers- Chinese and Japanese galore.
The only us vs them is the elite vs labor. Sun Tzu had another saying: "Know your enemy as you know yourself and in a hundred battles you will never lose" . Americans do not take the time to know their enemies and are thusly defeated at every turn.
You are either a part of the elites, a part of the laborers or dreaming of making the transition and haven't awakened yet. There will always be work for those that make themselves useful and are compliant. There will always be pain and uncertainty for those that don't. There will, hopefully, remain a place where we who know our enemy and are allowed to build a safe place can enjoy life and remain anonymous.
.
That would be snake eyes. Congratulations.
I think it notable that China is encouraging its citizens to buy gold. The U. S. has not done any meaningful thing to curb the sale of guns. Perhaps it's a strain to draw a parallel there, but I see one. (If you thing guns are being stifled, go to a gun show if one comes to your area.) The Chinese will have gold to keep them settled down and continuing to drink the political kool-aid; the U. S. citizens will have a sense of self-empowerment with the accumulation of weapons. Whatever blows yer skirt up!
.
There will, hopefully, remain a place where we who know our enemy and are allowed to build a safe place can enjoy life and remain anonymous.
That's the problem, brother. There isn't, and there won't be. Try going off somewhere secluded to enjoy life and remain anonymous. If it's just you you might be OK (not survival-wise, government intrusion-wise). Get some fellow like-minded folks? Well golly gee, we got us a collection of terr'ist fks! Lock and load boys!
Asking to be left alone nowadays is just silly. You're going to have to fight for that right, philosophically and physically. Do some refresher reading just on the timeline of events at Ruby Ridge if I sound crazy. A woman shot in the head while holding her baby and keeping the door open for her wounded husband (shot in the back) trying to make it to safety. We've been in a totalitarian state for far longer than just the current Republicrat administration. But the free lunches and flickering television have continued, so who gives a shit?
That's the problem, brother. There isn't, and there won't be.
I read that only a very small percentage of Americans have a passport.
Take a look around. I found my Shangrila.
Even if your plan is to do a Patrick Henry when the time comes, in the mean time, life, liberty and the pursuit of happiness can be had for a song.
Good luck to all.
Edit: After reading all the anti-corporate, economic warfare rants below, I need to clarify that I'm a farmer in a land of plenty. Less is more. Consumerism kills. Most of what you think you need, you don't.