Posted on 07/13/2011 7:50:37 PM PDT by bruinbirdman
Debt limit aside, borrowing to pay off loans won't work, agency says
The US' sovereign credit rating is likely to be downgraded regardless of whether the US Congress reaches an agreement on raising its statutory debt limit, Chinese rating agency, Dagong Global Rating Co Ltd, said on Monday.
"If the debt limit is raised and the public debt continues to grow, it will further damage the US' debt-paying ability, which is a key factor in Dagong's evaluation, and we will consider lowering its ratings accordingly," said Guan Jianzhong, chairman and CEO of Dagong.
"If the raised limit fails to pass and the US faces default, the rating will be immediately and substantially downgraded," he said.
According to Guan, the downgrading is really just "a matter of time and extent".
Guan spoke after the US Treasury Department warned that the nation will exhaust its borrowing authority under the $14.29 trillion debt limit on Aug 2 and urged Congress to raise the statutory debt limit "to avoid the catastrophic economic and market consequences of a default crisis".
The three major international rating agencies, Moody's Investors Service Inc, Fitch Inc and Standard & Poor's Financial Services LLC (S&P) each warned in June that they would downgrade the US sovereign credit rating in the event of a default.
The country's rating now stands at A+ in domestic and foreign currency on Dagong's list, with negative outlooks to its future, much lower than the result of the US rating agencies.
Dagong's rating was downgraded from AA on Nov 9 after the US government announced a second round of quantitative easing (QE2).
Dagong published its first sovereign credit ratings in July 2010 and now offers surveillance ratings of 67 countries.
The US Securities and Exchange Commission denied Dagong's application for Nationally Recognized Statistical Rating Organization (NRSRO) status because it is not able to implement cross-border supervision to the agency.
Although Guan considers the US Congress still very likely to reach an agreement on raising the debt limit, he remains concerned about the fundamental issue the US faces.
"Raising the limit is just a legislative measure to allow the government to borrow more money, but it does not change the fact that the US lacks momentum for economic growth," Guan said, adding that if the inflation and unemployment rates remain unchanged, the US government might turn to QE3.
The fundamental problem is that the US' ability to generate wealth is far from compensating its increasing debt, and "paying debts by borrowing more is not a solution," he said.
"Neither the $2 trillion QE nor raising the debt limit is an effective measure. And the sovereign debt crisis will continue," Guan said, explaining that the US government spent huge amounts on consumption and social security, and had limited resources left for economic development.
Yuan Gangming, a researcher at the Center for China in the World Economy (CCWE) at Tsinghua University, said the US government is currently in an abnormal post-crisis period, so increasing the scale of debt will be a long-term and regular measure before the country's economy is back on track.
So raising the debt limit would be good news for investors, but bad for China, the largest holder of US Treasury securities, he said.
"Although reducing US Treasury holdings seems like a choice, China will have to continue its investment, because, after all, we have very limited choices of investment," Yuan said.
David Dollar, the US Treasury Department's Economic and Financial Emissary to China, believed the market of the US treasury securities is still optimistic. But the social security and military spending have to be taken into account if the government is to reduce the deficit.
The top 15 debtor nations, all of which are developed countries, account for more that 90 percent of the credit resources globally, yet only contributed 3 percent to global economic growth the year before the 2008 crisis.
Opps, I guess Dagong is really flipping a wig after BernankeIdiot insinuated that there may be QE3....
Dagong is simply the old Soviet Isvestia/Pravda revised for a new financial world.
Why wouldn’t they downgrade the US? Hell, I would. We are a paper tiger, both militarily and financially.
1. Who will fabricate this one, since no one in the House or Senate actually wrote the last two?2. When will there be a full and complete public accounting of where the first two plus trillion in QEs went?
You know they're running a scheme to bankrupt the U.S. when they refuse to account for the trillions they funnel off to banks around the world, banks owned by members of The Bilderbergers in the final analysis.
So they think we're a nation of deadbeats, but they're planning to invest here anyway?
Anyone ever think about why the RATs picked August 2nd as the date that borrowing max’es out?
Its totally arbitrary... they could have picked +/- a week or two...
They picked August 2nd as the first day of shutdown because that way, every laid-off federal worker will have worked ONE DAY in August (a Monday) and will therefore have health care coverage throughout the month!!!
No one expects the layoffs to go more than a few weeks
While I’m certainly concerned about what Dagong thinks about our creditworthiness, I’m much more concerned about what DongDong thinks, as he’s the finance minister there.
What this guy is saying is far more rational than what our own ratings agencies are saying. But if we don’t default then there is no reason to lower our rating. And why would we default unless we keep borrowing. Even if most of the government gets layed off- it would not be a default. Even if the socialist money stopped going out to all the takers in this world...It still would not be a default.
The decision of default is not about if the debt ceiling is raised or not. That decision is about what the treasury does with the real(un borrowed) money that will always be incoming.
We must escape the trap George Soros has set to bankrupt the world and establish central control in China, with its Communist “discipline.”
And that's why Repubicans want offsetting cuts in the budget. This is all about CUTS no matter what Obama tries to say.
Thanks you third world Homo,Turd,You are useless completely useless.
militarily? Delusion.
Fact. Barak Hussein abu Obamma al-Kenyata is still CINC and ChiComs are his comrades.
yitbos
As someone who served in the US Navy, I feel qualified to say that we have the best military in the world. However, said military is USELESS if our esteemed leaders have no balls and are unwilling to unleash the power of our military. So yes, we are a paper tiger. China on the other hand has shown that they will use their military might. We willingly give china our hard earned technology and are currently helping them to catch us. Delusional? Not me my friend.
I imagine that the effects would be that the US would have to pay higher interest on future loans but that any debt held by China now would be worth less.
Any U.S. treasury instrument, when held to maturity, will be redeemed at face value.
If, for some reason, the ChiComs want to sell U.S. government instruments prior to maturity, they would sell them on the open market. The U.S. government does not participate in secondary markets.
Now, the Federal Reserve is a different story.
If interest rates offered by Uncle Sam for new debt exceeds rates offered on Treasuries already held by the ChiComs, the value (at premature sale) of commies' bills, notes, bonds would would decrease only if the Red Chinese wanted to sell them before maturity.
The ChiComs hold lots of Treasuries of various maturities and rates.
Lately, the ChiComs have not been sellers of U.S. Treasuries. Their portfolio has decreased because redemptions at maturity have exceeded purchases of new Treasuries.
The Commies like the interest they receive on U.S. Treasuries. That is the hard currency the Red Chinese covet while their yawns are not even convertible on the open market.
yitbos
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.