Chinese ratings agency downgrades US economy
August 3, 2011

Even as the US avoided defaulting and Moody’s and Fitch maintained their rating of AAA on what Putin recently called the parasite of the global economy, a Chinese ratings agency downgraded its U.S. credit rating from A-plus to A.  This is the first time that a Chinese ratings company has been given the importance of Moody’s or Fitch, which haven’t downgraded the American economy yet. Dagong’s downgrading puts US credit several notches below the agency’s top rating and on par with creditworthiness for countries such as Spain, Estonia and South Africa.

From the economy that holds the largest amount of US public debt, Dagong Global Credit Rating, a relative newcomer to the sovereign debt rating realm and little known outside of China, said in a statement that the U.S. decision to raise the borrowing ceiling will not change the fact that the growth of its debt has outpaced its overall economic growth and fiscal revenue.

It said the deal reached by Congress and signed into law by President Barack Obama may further erode the country’s debt paying ability in the coming years, and the agency issued a negative outlook for the United States.

“The rise of the U.S. debt ceiling helped temporarily avoid a debt default but has not improved its solvency and the increasing government debt burden will deteriorated the U.S. sovereign debt crisis,” it said in the statement.

Even though the Chinese rating echoes the sentiments of the global economy towards the US, Moody’s Investors Service and Fitch Ratings maintained U.S. ratings for now, but said additional deficit-reduction measures are needed for the government to put its finances in order and retain the coveted rating. Underscoring that threat, Moody’s assigned a negative outlook to the Aaa rating, which means a downgrade is possible in the next 12 to 18 months.

In its maiden sovereign ratings issued last September, the agency listed U.S. government debt as a bigger risk than that of 11 other countries, including China, while established U.S.-based ratings agencies, such as Standard and Poor’s and Moody’s Investor Service, have given the United States a top grade and marked China lower.

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