Tuesday, January 16, 2018

China ratings agencies do what U.S. ones refuse to... downgrade the U.S. credit rating

When S&P dared to downgrade the U.S. credit rating back in 2011, the government made swift work of the ratings agency by having the Attorney General trump up charges of it being a primary cause of the subprime mortgage collapse.  And ever since then, despite a near doubling of the national debt under the Obama administration, no U.S. ratings agency has done anything to America's AAA+ rating.

However over in China there is little fear of what the Department of Justice can inflict upon them, so on Jan. 16, the Dagong ratings agency decided that real viability of the U.S. credit rating was no longer unblemished and summarily lowered their rating down from A- to BBB+.

In its latest reminder that China is a (for now) happy holder of some $1.2 trillion in US Treasurys, Chinese credit rating agency Dagong downgraded US sovereign ratings from A- to BBB+ overnight, citing "deficiencies in US political ecology" and tax cuts that "directly reduce the federal government's sources of debt repayment" weakening the base of the government's debt repayment. 
Oh, and just to make sure the message is heard loud and clear, the ratings, which are now level with those of Peru, Colombia and Turkmenistan on the Beijing-based agency’s scale of creditworthiness, have also been put on a negative outlook. 
In a statement on Tuesday, Dagong warned that the United States’ increasing reliance on debt to drive development would erode its solvency. Quoted by Reuters, Dagong made specific reference to President Donald Trump’s tax package, which is estimated to add $1.4 trillion over a decade to the $20 trillion national debt burden. 
“Deficiencies in the current U.S. political ecology make it difficult for the efficient administration of the federal government, so the national economic development derails from the right track,” Dagong said adding that "Massive tax cuts directly reduce the federal government’s sources of debt repayment, therefore further weaken the base of government’s debt repayment." 
Projecting US funding needs in the coming years, Dagong said a deterioration in the government’s fiscal revenue-to-debt ratio to 12.1% in 2022 from 14.9% and 14.2% in 2018 and 2019, respectively, would demand frequent increases in the government’s debt ceiling. 
“The virtual solvency of the federal government would be likely to become the detonator of the next financial crisis,” the Chinese ratings firm said. - Zerohedge


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