China Downgrades US Debt: Should Investors Care?

Forbes ^ | 10/17/2013 | Panos Mourdoukoutas

[TexGrill]

China’s Dagong Global Credit Rating cut its credit rating for United States debt by one notch to A-minus from A on Thursday, saying an agreement reached by Congress to raise the government’s borrowing ceiling failed to address the root cause of its debt issue.

Should investors care?

In theory the answer is yes, as China is a large holder of US Treasuries. If Chinese officials were to take this downgrade seriously, they may end up trimming China’s holdings of US Treasuries, causing a market sell off.

In practice however, the answer is no, for four reasons.

First, it is very unlikely that the average investor has ever heard that an agency called Dagong Global Credit Rating even exists. Second, a move like that would be followed by sharply lower Treasury prices, and end up hurting the country’s remaining holdings.

Third, it could sour relations between Beijing and Washington, hurting Chinese exports to the US— and that could perhaps explain a big spike in gold.

[TexGrill]

Global business tip

[FredZarguna]

Those dagong Chineses is messin’ with us again!

[RC one]

failed to address the root cause of its debt issue

No mention at all of what the Chinese perceive the root cause of our debt issue to be. How interesting.

[Cringing Negativism Network]

So there’s a simple enough solution:

Bring American factories, back to America.

Just saying.

[cripplecreek]

saying an agreement reached by Congress to raise the government’s borrowing ceiling failed to address the root cause of its debt issue.

Sadly they're absolutely correct.

[Brad from Tennessee]

“The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged,” Dagong said in the statement, adding Washington's solvency was vulnerable as old debts were still repaid through raising new debts.

“Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future,” it said.

http://www.france24.com/en/20131017-chinese-agency-downgrades-us-credit-rating

[Vince Ferrer]

The only thing that matters is the ten year treasury rate. If ratings hurt rates, it costs us more.

[mrsmith]

Heck, higher yields are great for investors- except the FED LOL!

It’s about time the gov started paying investors more for the use of their hard-earned money.

[Mark]

But global warming is the biggest problem.(/s)

[dr_lew]

In practice however, the answer is no, for four reasons.

First, because the United States of America is too big to fail. Second because the United States of America is too big to fail. Third because this is obvious, and fourth, what I just said.

[Cringing Negativism Network]

That just may be, but China has four or five times America’s population.

We need to start taking China seriously.

It is a massive, and increasingly strong communist powerhouse.

Bring back American factories.

[Lurkina.n.Learnin]

Has Obama came out and blamed the tea party for this yet?

[dr_lew]

Just for the record, nobody’s too big to fail.

[TexGrill]

No Obama likes to use a face when doing his blame game. Historically, it was all Bush’s fault, but now it will be all Cruz’s fault. Barry will travel all over the world saying, “Blame Cruz.” It’s gonna be fun to watch.

[fhayek]

With Obamacare, unions, environmental regulations, taxes, etc,etc, those factories are NEVER coming back.

[Cringing Negativism Network]

I disagree.

Bring American factories, back to America.

[Lurkina.n.Learnin]

It doesn’t seem like Forbes thinks this is a big deal but at some point China is going to start grumbling. This may be that point in time.

[matt1234]

because the United States of America is too big to fail.

I'm sure the Romans felt the same way c. 200 AD.

[deadrock]

As of now, labor costs would not justify opening any manufacturing business.

After Oslama goal of making the USA a third world shit hole comes to fruition, that may change.

[Milhous]

It’s about time the gov started paying investors more for the use of their hard-earned money.

It only comes hard for the politically disenfranchised. The elite get all of the Federal Reserve Notes they want without earning them. At any rate, the debt's so large that a small increase in the interest rate will cause a runaway increase in total debt as larger portions of deficits get allocated to simply pay interest. The Fed admits to buying $45 billion of Treasuries a month. This month and next they need to substantially increase their buying just to cover debt rollover.