Chinese Credit Agency Downgrades U.S. Debt (Again)

China’s Dagong Global Credit Rating just downgraded the U.S.’s credit rating from A to A-minus, according to Zero Hedge.

Dagong pulled no punches in its announcement this morning. “Since the outbreak of the U.S. debt crisis in 2008, the deviation between the federal government’s sources of debt repayments and the country’s real wealth creation capacity has been constantly broadened,” they grumbled. “The huge amount of government debts that lack the basis of repayment always stands on the brink of default, and this situation is difficult to change in the long term.”

American-based Fitch still rates U.S. sovereign debt at AAA… they did, however, downgrade the outlook to negative, following the horn-locking in Congress. Fitch’s explanation explicitly blamed political problems and the recent risk of default.

Perhaps the most interesting element is that Dagong doesn’t lay the same blame at the feet of the recent debt ceiling debacle and government shutdown. Instead, it indicated that the recent congressional pandemonium “highlights the deterioration of the government’s solvency, pushing the sovereign debts into a crisis status.”

China holds a boatload of U.S. Treasury securities: about $1.3 trillion, at last check. It is certainly getting squeamish about the money it holds. Dagong now estimates that the “depreciation of the U.S. dollar caused a loss of $628.5 billion on foreign creditors over the years of 2008-2012.”

With U.S. ratings agencies held in the grip of vengeful government regulators and in the cross hairs of the Justice Department, Dagong is the only noteworthy ratings agency remaining that might produce some sort of realistic assessment of the U.S. credit situation. That can was just kicked to January, when it will assuredly be kicked again. And again.

If there’s one thing Congress works hard it, it is insolvency.

Jason Farrell

For The Daily Reckoning

P.S. We’ve been covering the slow-burn collapse of the American dream for several years now. While the media have been laser-focused on the drama in Congress, what they’re not telling you is that the first stage of a massive new crisis has already begun. In fact, America has been in a state of perpetual crisis for the past six years, and it is gradually worsening by the day. To get the real story behind the flashy headlines, subscribe to The Daily Reckoning by clicking here.

The Daily Reckoning