U.S. Stripped of AAA Credit Rating...By China?!

asiablues's picture

By Dian L. Chu, Economic Forecasts & Opinions

Despite repeated warnings going back several years from Moody's, S&P et al that the U.S. could lose its top credit rating with ongoing fiscal deficits and heavy debts, the platinum-plated AAA rating of the United States seems all untouchable.

The top notch rating certainly has helped with continuing debt financing and bolstered the confidence of some government officials. Secretary Geithner, for example, said in a February interview that the U.S. government "will never" lose its credit rating, despite big budget deficits and a newly raised debt ceiling of $14.3 trillion.

Along came a Beijing-based rating agency--Dagong International Credit Rating Co. (????????????.)  Its first order of business is to downgrade sovereign debt ratings on some major Western nations, while slamming its Western counterparts.

"The reason for the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor's repayment ability."

Dubbed as the world’s first “non-Western” sovereign credit rating agency, in its debut international report, Dagone (means Big Justice in Chinese) downshifted the US to AA with a negative outlook, while UK and France were given AA-; Belgium, Spain, Italy with A-.

It also rates debt risk of the US above China, and listed the US as one of the countries with exposure to increasing borrowing costs and default risks.

In June, the total US debt topped $13 trillion for the first time in history. The International Monetary Fund (IMF) projected that the U.S. deficit will stand at 64% of GDP this year, rising to just over 96% by 2020.

Concerned that high unemployment may force a double dip recession, the IMF--just last week--urged the United States to rein in its budget deficit.

Some see Dagong’s report as mere political propaganda by Beijing to counter the repeated pressure by the U.S. on its yuan policy. Nevertheless, the national debt by country chart (below) should say that Dagong's assessment is not entirely baseless, regardless of any possible hidden agenda.

National Debt by Nation
Meanwhile, the flock to the U.S. treasury in recent months due to the European debt crisis--temporary in nature—is by no means a testament to America’s credit worthiness.
This downgrade, although might not carry much weight and influence on the bond market, does give a sobering glimpse into the unthinkable……, well, at least to Geithner.

“Perceptions of a large U.S. borrowing capacity are misleading.” ~ Alan Greenspan

Economic Forecasts & Opinions

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paragshah12's picture

The USA is under economic siege…our politicians are so blind to it because the enemies that are attacking us lobby and spend huge sums of money on politicians…China pegged thier monetary value to the dollar…chinese currency is without value…literally…but the fed banking system is going along with it…as is congress…and allowing huge sums of dollars to be purchased by worthless currency…
http://www.prime-targeting.com/bond-ratings-arent-the-only-things-impacting-bonds/

cocoablini's picture

Of course the Chinese have India as high risk in that chart. Sure, it's true. Welcome to the party, China. The whole rating thing is a racket and part of the pyramid scheme.

I suspect this is another political shame-of-the-day tactic by China.

Sigma O's picture

"Dagong (means Big Justice in Chinese)"

Is this Zero Hedge or Zero Wing?

carbonmutant's picture

Sounds like a prelude to demanding higher yields....

Testicular Cancer's picture

Spain & Mexico has better ratio than Italy & the US? Where you getting this data from, the IMF?

Snidley Whipsnae's picture

One move in a very long chess game...One reason big wars begin is that one country feels that to wait is to weaken economically and militarily. Obviously, China feels that time is on their side.

Testicular Cancer's picture

I think the Chinese are being generous. Feel like the first domino has fallen.

CrockettAlmanac.com's picture
in its debut international report, Dagone (means Big Justice in Chinese) downshifted the US to AA with a negative outlook

 

Doggone Chinese.

Tic tock's picture

Debt de-leveraging hasn't even come close to solving Ag. Demand

augmister's picture

Hey, we round eyes have lotsa your money....better offer apologies and platers of egg rolls with your nasty tongue!

The Alarmist's picture

There is a reason why Little Timmy could boldly state that the US will never lose its AAA rating ... He plans to nationalize the major credit rating agencies at some point in time before it becomes necessary for them to downgrade the country.  Meanwhile, the Chinese know the game is rigged ... can you blame them for going rogue?

ego contemno TPTB's picture

So is this a 'flip the finger' moment - or something else?

http://www.nytimes.com/2010/04/13/world/13summit.html?_r=1&partner=rss&e...

(aka - we'll let you know)

+

http://www.timesonline.co.uk/tol/news/world/us_and_americas/article69076...

(aka - you brought a peashooter to a gunfight?)

=

http://en.wikipedia.org/wiki/Zugzwang ???

(Simpsons 138th episode extravaganza)

Blofeld: 20. Your move, Mr. Bond.

Bond: I'll take a hit, dealer. [Homer gives him a card] Joker! You were supposed to take those out of the deck.

Homer: Oh, sorry. Here's another one.

Bond: What's this card? "Rules for Draw and Stud Poker"?

Blofeld: What a pity, Mr. Bond. [Odd Job and Jaws grab Bond and drag him out]

Bond: But...but it's Homer's fault! I didn't lose. I never lose! Well, at least tell me the details of your plot for world domination.

Blofeld: Ho ho ho, I'm not going to fall for that one again

 

geno-econ's picture

through the ages China has opened their doors to the West only to  boot out the barbarians when their Xenophobic instincts are aroused --ala the opium war ,Communist takeover and many other examples.  In modern times the global economic model meets Chinas needs and therefore China is willing to reinvest US$ back into treasuries simply because it keeps the game alive no matter what ratings they hold . The obvious dangers for China are;

    1 Western Protectionism that will drive them to develop domestically or seek other markets {not many available}

    2 Competition for natural resources globally but apparent US military power places them at a disadvantage. No doubt China is watching effectiveness of US military in Iraq,Afghanistan in dealing with locals and if US is willing to share the spoils

    3 Breakdown of western financial system through insolvency leading to economic deflation. It would be in China's interest to extend even more credit under this scenario --even debt forgiveness!  Sounds familiar  but thats what the US did with third world countries that defaulted 

Bottom line is that US bond credit rating is not that important as long as US$ is the world reserve currency.  Should the US$ lose this status , we become  a third rate power inviting China to unload all their US$ and retreat behind the great wall for another 100 years and we go back to the farm

trav7777's picture

Uh...the Chinese LOST the Opium Wars.

the US's military effectiveness is low given that we are not waging Total War.

China is just part of the ponzi.  Their industrialization was fed by our credit; it would not have been possible without it.

tony bonn's picture

rotflmfao.....a cat fight among totalitarian regimes.

anarkst's picture

"Secretary Geithner, for example, said in a February interview that the U.S. government "will never" lose its credit rating,..."

Timmy, although a complete dufus, understands this matter well.  The U.S. AAA rating, like the dollar, is backed by 5000 nuclear weapons.  It's interesting that most people fail to appreciate the value of having the largest stick in the neighborhood.

StychoKiller's picture

A stick that cannot be used because it'll also kill the owner is totally useless!

Almost Solvent's picture

Don't forget all that weapons grade anthrax.
Yummy

Greater Fool's picture

In other news, I have just opened a rating agency that rates my debt as the highest-quality on planet Earth. Please let the local Dodge dealership know that I will be picking up my Viper next Tuesday. Thanks a bunch.

George the baby crusher's picture

Greater Fool Backed Securities? Sounds like a serious financial instrument.  Your Viper is ready for you on the lot.

Ahmeexnal's picture

Now look at those numbers per citizen. That's a lot of dishes there waiting for you to wash!

SmittyinLA's picture

LOL 13 trillion in debt, we accumulate more liabilities than that every year.

What about the other 100 trillion or so in unfunded liabilities, thats debt too.

Does anybody really think we're going to pay  debt holders before benefits to voter-retirees?

No, we'll just print and screw everybody including retirees and debt holders, they'll both get to split a "cut" of what they loan us (less expenses of course).

 

The state's position as the sole middleman is safe.

maddy10's picture

That's the beauty of ponzi

Everybody sees it but nobody will denounce it

You will read books written, Phd thesis done in 2030s 2040s about the blunders being committed

But what matters for us is 'now'

I don't see how fresh graduates in US get jobs when everything is outsourced- factory jobs to china, services to India and others

What jobs do they have here? bars and restaurants.Universities , military,government jobs

I don't think so called primary dealers in treasuries don't know this

right now they don't have the right alternatives

let's see ,is the world ready to wake up?

Naah, other countries are too slow and brainwashed by 'US led economics'

Rest of the world has a serious case of 'Stockholm syndrome'- looks up to US as an inevitable necessity

It is time to put serious reform  into IMF's,UN's of the world and give them more legitimacy

 

Grand Supercycle's picture

 

As warned about earlier, DOW/SP500 remains bullish for now ...

http://stockmarket618.wordpress.com

DoctoRx's picture

I second Traderjoe's comment.  Debt/GDP is a sham statistic. 

traderjoe's picture

I've never understood debt/GDP as a good barometer. Should be something like deficit/revenue, or some sort of actual coverage ratio. GDP pertains to the entire economy, not just to the government sector. It's loosely related, but not directly so. But, deficit/revenue in the US would be something like 180%, so it would show the massive fallacy of actually being able to balance a budget. 

doomandbloom's picture

rater has become ratee

TradePlacer's picture

What happens when unfunded liabilities are added to the debt figures?

Jim B's picture

Little Timmy must deny the reality of the situation to live with the intentional destruction of our currency and perhaps even our economy!

seventree's picture

How do I start my own credit rating agency? Do I need a license or something? Don't know how they work exactly but do good job you bet.

Got a business slogan allready "We may be easy, but never cheap."

Joanito's picture

Someone aparently forgot to tell the primary dealers about the U.S. credit ratings issues.  Since they appear to be showing up at auction to swallow up whatever is issued to be pledged down the road as collateral.  At the moment, whatever statements are contained in this ratings agency's maiden voyage into int'l propaganda are not soch a huge deal.  Nor are these credit worthiness "downgrades" news.... to anyone.

"The reason for the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor's repayment ability."  

-The above author appears to have left out that there "the international credit rating system" doesn't acknowledgemthat there is an enabler in the room who has allowed the debtor nations to continue this practice far beyond the constraints that would have kicked into action in any normal "creditor/debtor" relationship.  Or doesn't it?

maddy10's picture

what primary dealers?

Fed, wallstreet and treasury are one and the same, hard to say where one ends and other begins

Rating agencies are enforcing the Ponzi, that's all

Others in G-20 gets to eat crumbs every now and then, so rest are going along

Pladizow's picture

Confusious say, "Man who go to bed with itchy asshole, wake up with stinky finger"

That finger just poked Uncle Sam in eye.

He will now get pink eye, the media will spin it as enhanced vision and the market will rally.

Cpl Hicks's picture

I found this bit of information weeks ago in a fortune cookie in a restaurant in Seattle's Chinatown..er..International District. Thought it was common knowledge.

RockyRacoon's picture

Wonder how long it will be before this rating is adjusted to AAA?

An admission of failure to carry the 1, or some such BS, will be corrected.

Any takers?

metastar's picture

And so it begins ...

kaiten's picture

"US stripped of AAA credit rating by China"

First credit rating, then credit ;)

 

Kayman's picture

The best of all possible worlds.  China stops buying U.S. debt.  And the U.S. stops buying short term crap from China.

knukles's picture

To those of us whose lineage began in the fixed income segment of the capital structure, we'd suggest that just about every single last major financial market problem's foundations were birthed in the credit markets.  Usually they've begun with an inability to roll or secure financing a shortage of liquidity, leading to insolvency.  And in many cases, brought upon by none other than a mere perception of an unacceptable increase in liquidity risk.  To which ratings, however rightfully maligned, play a significant role. 

This event has been overlooked by the MSM today (7/13) but shall ultimately be referred to as a straw, a timely and significant straw added to what is becoming an unbearable load upon the proverbial camel's back.  And funny, odd how it coincides with increasing discussions of new world wide clearing currencies (SDR or other) 4 bear raids on the gold market in about as many weeks, the BIS swap, and so forth. 

Further, the ratings agency so promulgating such is held to be of an independent nature, whilst domiciled in ...China.  Verily, the landlord of American sovereign finance, the decision published not only in but publicly announced at the official organ of the Chinese government.

To me, this represents a significant wake up call!  This is Not Small Potatoes.

The Congress and Administration just could not contain their public populist derision toward Chinese central bank currency policy.  Well, its a comin' home to roost.  Throughout the last year, the Chinese had carefully and politely stated that the Yuan would be revalued, attended to at the proper time as befitting of their own policies whilst Clearly Warning the US of Untenable Increases in US Sovereign Debt Levels, and of the Importance of Stability of the $US' Purchasing Power.

Apparently, nobody listened.  Apparently, payback is gonna be a bitch.  Essentially, the largest holder of the US debt has downgraded the same.  Think our system has interlocking beholden relatinships?  And no, the US is at greater risk in this showdown of possibly withering financial fire, than China.  The argument of they'd not do something like this as it'd hurt their own position is bogus, empty, crossed fingers, whistling past the grave yard.  They hold all the cards.  We rent the American country from them.

This is economic warfare writ large; they got the big guns, shooting bulls eyes and we got Timmy with an empty bazooka. 

MarketFox's picture

Neutral ground needed....

Securities information needs to be provided by a neutral source....

The securities exchange itself should be provided by and regulated by a neutral source....

How about Switzerland, Singapore, or Hong Kong ?

The US has already "been given" its chance....and failed....in particular to regulatory capture via the corporate/government  job revolving door....

No accountability....and just more of the same....even after a multi-trillion $ fraud....

StychoKiller's picture

I nominate Iceland as the neutral source!  Oh, the delicious irony!

Terra-Firma's picture

Our eastern friends are strategic thinkers by culture and mind-set and therefore dangerous! 

I believe China is nurturing its own financial center to rival Wilt Street in New York. And, because Chinese financial firms do not have the interconnected vested interests that are jeopardizing politically unpopular decisions that need to be taken by "western" countries; they can speak and write more freely about us in the west. Kind of ironic when you think about it. We have a communist country providing perhaps an added dimension to understanding what the western world is really up against; all the while western governments (Say USA) are using propaganda, market manipulation, false flags and god knows what to play psychological games with investors in order to win elections and maintain power.

 

Our "east" vs. "west “societal war with the middle east for sweet crude and oil is playing itself out as might be expected; short a war; that unfortunately will come when China encircles Taiwan during a war games exercise while back channels are giving the US the ultimatum. That is some time away though when the US is economically weaker. And weaker it will become unless the fear of real economic discipline is reintroduced.

Without failure, even horribly hard failure, there can be no assurance of a structurally sound economy. I think we need to find a real economic transactional bottom in our global markets and SUSTAINABLE government policies. A $1.2T deficit is not sustainable; and thefore, by extension, any of the outcomes generated by the policies affected by the $1.2T.

My first post.

Louie

 

 

SmittyinLA's picture

China will surpass Wall street in finance, our courts and laws are too fungible to compete with China in an open market, they enforce their laws and prosecute corrupt public officials, we elevate them to the Presidency.

From an investor perspective would you rather invest in US institutionalized fraud like FNM or in a place where fraud is prosecuted and the sentence (death) is carried out in 1 day?

Its a no brainer, I'll take the folks that execute fraudsters.

China wont attack Taiwan either, Taiwan has won the ideology war, China will join Taiwan or vice versa (they already have), there's no cause for military operations, no physical force is needed, if we ever had a war with China ,Taiwan would be our enemy and would rather trade with their biggest market for real goods and services and closest political ally then get smoked in nuclear war.  

We're just a bunch of broke foreign debt holders to China, gravity and inertia will bring us down and they know it.

 

 

 

trav7777's picture

This is just trash; the ENTIRETY of China is corrupt, at almost every level.  You just don't have a clue how things work there, do you?

Nevermind the pollution, the lack of property rights, the billion starving peasants, the state-controlled media.  Everyone sees what the Chinese permit to be seen.  It's propaganda in the classic sense, or the way "news" programs selectively edit what they show in order to force a particular conclusion.

Muir's picture

Way to go Trav!

Give'm the finger for being ignorant twits!

Snidley Whipsnae's picture

Have you been to Detroit recently?

Suisse's picture

Take a look at the special economic zones. Hong Kong is more free than the U.S.

traderjoe's picture

Welcome aboard. I too think China is looking long-range - beyond election cycles, etc. Don't know if they will get it all right, but they have the chance (if they take it) to learn from our mistakes. Could go either way. The one-child policy wasn't great long-term thinking. I do think next century will be Asia-focused. 

Suisse's picture

Population can not grow indefinitely. If the Chinese are to have any quality of life whatsoever there can not be two billion of them.