China’s Rating Agency Downgrades US Credit, Rips Debt “Deal”
China’s Dagong rating agency has downgraded the United States credit rating from “A” to “A-” and maintained its “negative outlook” on American debt despite Democrats and fiscally liberal Republicans reaching a deal this week to extend government borrowing.
And while the American rating agencies remain submissive to their government overlords (like the country’s mainstream media), China is once again telling it like it is.
“The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and GDP remains unchanged,” the agency stated in its release. “For a long time the U.S. government (has maintained) its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency. Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.”
The Dagong statement – one of the most compelling indictments of American fiscal policy we’ve ever read – cites five key “rationales” for the downgrade.
They are: 1) “The deterioration of the government’s solvency,” 2) a broadening gap between “the federal government’s sources of debt repayments and the country’s real wealth creation capacity,” 3) The “depreciation of the U.S. dollar” due to the Federal Reserve’s ongoing quantitative easing (a.k.a. money-printing) policy, 4) The “continual extension” of the debt ceiling, and 5) A political climate which is “unfavorable for eliminating the risk of its sovereign debt default in the long term.”
“The Democrats and the Republicans of U.S. do not have a consistent strategy target (for) solving the sovereign debt problem,” the agency states.
That’s for damn sure …
And while the American public has been conditioned in recent years to think constant debt ceiling increases are the only way to avoid “catastrophic defaults,” the Dagong release points out the opposite is true.
“In order to avoid the sovereign debt default, it becomes an inevitable choice for the U.S. government to repay its old debts through raising new debts,” the release notes. “The fact that the debts grow faster than the fiscal incomes will further impair the federal government’s solvency. Ever since (Barack) Obama’s inauguration in 2009, the U.S. Congress has extended the debt ceiling for five times, reaching a total volume of $5.1 trillion. This further raise of the debt ceiling shows the government’s incapability of improving its solvency by improving the basic economic and fiscal elements.”
In years past this website would insert a line in our coverage imploring American policymakers to get their act together and “take meaningful action on the debt before it was too late.” Not anymore.
It is officially too late …