And while our rating agencies still get their marching orders from Bill Gross and from Obama, in that order, China is not waiting. In a just posted Reuters interview, Dagong said on Thursday it plans a further downgrade as early as next week, even as politicians race against the clock to avert a ruinous debt default. Guan Jianzhong, Chairman of the Beijing-based Dagong Global Credit Rating Co, said he still believed U.S. lawmakers will clinch a last-minute deal on the U.S. debt ceiling, but the damage has been done. "We will react soon, probably next Monday or Tuesday. We need to look at whether they reach a compromise and the scope of the compromise, then we decide how deep the rating cut will be," Guan told Reuters in an interview in his spacious office. Naturally, this move will be aped by our own mockeries of a "rating" agency, leading to a very curious paradox: after all is it not the sock puppet at the top of it all - our very own distinguished tax evading eminence Tim Geithner himself who had the following exchange with Fox' Peter Barnes as recently as April: "Is there a risk that the United States could lose its AAA credit rating? Yes or no?” Geithner’s response: “No risk of that.” “No risk?” Barnes asked. “No risk,” Geithner said." So... when the US is downgraded in a week or so.... does that mean it is time to fire Geithner?
As for Dagong, who as usual is ahead of the curve:
"We will definitely cut the rating, regardless whether there will be a compromise. It has already dealt a blow to investors' confidence," Guan said. He said it could slash the rating to D if Washington defaults.
Guan's warning was starker than in an interview with Reuters on July 14, when he threatened to cut U.S. ratings in the coming three to six months if there was no major event to make real improvement in the U.S. fiscal situation.
Guan defended Dagong's higher AA plus rating for China, saying it's natural for Washington's biggest creditor to have a higher rating.
Economists estimate that China has parked about 70 percent of its $3.2 trillion foreign exchange reserves in U.S. assets.
Naturally, while bashing the US, Dagong is happy to close its eyes to the mess in its own back yard:
In contrast to his bearish view on the United States, Guan said China's economy would remain on a sound footing, which will contain default risks from piles of local government debt.
Dagong has no plan for now to downgrade or monitor ratings of debt issued by local government financing vehicles (LGFVs) or other debt rated by the agency, Guan said.
"I'm not worried about local government debt," he said, pointing to hefty government revenues and state assets.
"The Chinese government is a strong government, it has ability to mobilise resources," he said.
Further more, Chinese banks would not exacerbate default risks by cutting loans to LGFVs.
We expect Moody's to retaliate promptly to Dagong's downgrade of the US by downgrading China in kind, and so the great race to the mutuall assured D-rating of the two great superpowers will enter its second of three laps... A race which will be won by China once it realizes that its $1.2 trillion in US paper will never be repaid.