One of China’s leading credit rating agencies has downgraded United States of America government debt in response to what it sees as deliberate devaluation of the dollar by quantitative easing and other means.
If China, now the second biggest economy in the world, stops buying US government bonds this could have a very negative effect on the global recovery. The Dagong Global Credit Rating Company analysis is highly critical of American attempts to borrow their way out of debt.
It criticises competitive currency devaluation and predicts a “long-term recession”.
Dagong Global Credit says: “In order to rescue the national crisis, the US government resorted to the extreme economic policy of depreciating the U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development and the management model of national economy.
“It would be difficult for the U.S. to find the correct path to revive the US economy should the US government fail to understand the source of the credit crunch and the development law of a modern credit economy, and stick to the mindset of traditional economic management model, which indicates that the US economic and social development will enter a long-term recession phase.”
The analysis concludes: “The potential overall crisis in the world resulting from the US dollar depreciation will increase the uncertainty of the U.S. economic recovery. Under the circumstances that none of the economic factors influencing the U.S. economy has turned better explicitly it is possible that the US will continue to expand the use of its loose monetary policy, damaging the interests the creditors.
“Therefore, given the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong assigns negative outlook on both local and foreign currency sovereign credit ratings of the United States.”
The bombshell follows fears about the outlook for bondholders expressed closer to home by fund managers, including the American giant Merrill Lynch. Max King, global investment strategist at Investec Asset Management, who passed the Chinese note to me said: “Dagong is well respected as an independent credit rating agency which takes a more conservative view than better-known American credit rating agencies.
“It is interesting to see what people with money outside the American sphere of influence think.
Until recently, the US had been regarded as beyond reproach but now independent analysts say the position is deteriorating and likely to deteriorate further.
Click to view image: 'add47411d78a-usdebt1.jpg'
|Liveleak on Facebook|