Matt Phillips
The Wall Street Journal
11/9/2010
Dagong Global Credit Rating Co., the Chinese rating company that was recently rejected in its bid to be an officially recognized bond rater in the U.S., just downgraded the entire U.S. The always objective Xinhua has the “scoop.”
The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy.
Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the U.S. by one level to A+ from previous AA with “negative” outlook.
The Chinese rating agency said the downgrade reflected the U.S.’s deteriorating debt repayment capability and drastic decline of the U.S. government’s intention of debt repayment.
“The serious defects in the U.S. economy will lead to long-term recession and fundamentally lower the national solvency,” Dagong said in a report.
The Chinese rating agency said the Federal Reserve’s new round of quantitative easing would further depreciate the U.S. dollar and was entirely counter to the interest of the creditors.
The Federal Reserve last week decided to buy 600 billion U.S. dollars of U.S. Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.
“The credit crisis is far from over in the United States and the U.S. economy will be in a long-term recession,” Dagong Global warned in the report, adding a weakening greenback will cripple U.S. capability to attract dollar capital reflow.
Needless to say, the markets don’t find this credible. Bond yields haven’t done anything. As the Journal’s Joy Shaw reported, Dagong was little-known before it surprised the credit-rating world in July by publishing sovereign ratings for China that were higher than those for the U.S., the U.K., Japan and other major economies. The results differed from those issued by major credit-rating firms.
While we feel justified in giving Dagong’s neutrality the stink eye on this one, it’s not like Western credit ratings agencies have really distinguished themselves in recent years by slapping their good housekeeping AAA seal on some of the most toxic bond sludge Wall Street could concoct…
Read the rest at the Wall Street Journal
H/T Weasel Zippers
