US Credit Rating Placed on Negative Watch List (VIDEO)
Trapped in a flying illusion of safety, we meet Tyler Durden:
soap maker, connoisseur of explosives, and a great judge
of briefcases. Mr. Durden cuts to the chase:
“Oxygen gets you high. In a catastrophic emergency, you’re taking giant panicked breaths. Suddenly you become euphoric, docile. You accept your fate. It’s all right here. Emergency water landing – 600 miles an hour. Blank faces, calm as Hindu cows.”
And so does the average American see the economy: Quantitative Easing, the dollar, and the tacking of our debts onto the national credit card. It’s just like breathing pure oxygen.
Not everyone feels that way. Take our lenders, for example.
Chinese rating agency Dagong Global Credit Rating Co., founded in 1994 and one of the largest and most respected firms in China, announced on Christmas Day that it has put the local and foreign currency sovereign credit ratings of the U.S. on a negative watch list.
China is the largest foregin owner of US debt with holdings of $1.2 trillion dollars in US Treasury securities.
“The squabbling between the two political parties on raising the US debt ceiling reflected an irreversible trend on the United States’ declining ability to repay its debts,” Dagong Chairman Guan Jianzhong said.
“The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the US political system on its economic fundamentals,” he said.
“In regards to the US debt crisis, each political party is insisting on a proposition that is favorable for its own interests,” the Dagong company said in a statement on its website. “Therefore, it will be difficult to form a long-term consensus on solving the debt problem,” it said.
- The partisan political conflict and lack of national debt management have pushed the creditworthiness of the federal government to the brink. The decline of political decision-making will lead to weakened solvency.
- With no fundamental plan and measures for solvency in place, the US government is lacking the willingness of debt repayment and the depreciation of outstanding debt, indicating a trend towards implicit default. Quantitative Easing
is leading to continuous credit expansion and maintaining consumption through borrowing, and taking advantage of the status of the US dollar without touching on the ultimate issue of willingness to repay. Creditors have been suffering real losses from the consequent and persistent devaluation of the outstanding debt.
- The deterioration of factors impacting the federal government’s solvency has further widened the degree of deviation between debt repayment sources and real wealth creation capability.
- The US economy will probably fall into recession in 2013 and stay weak in the long term which will further weaken the material basis for the government to repay debt. The US is facing an unprecedented crisis of excessive credit. The inevitability and chronicity in the credit bubble burst will directly lead to the continued slump in total social consumption, triggering a chain reaction of long-term economic downturn.
- Debt limit lifting and debt monetization are becoming the long-term policy of the United States, and real solvency of the government will continue declining. In order to avoid suffering an economic recession resulting from the unabated long-standing and excessive credit expansion, the US government has adopted an even greater unconventional credit expansion by dragging the country into a cycle of continuously lifting the debt limit to stimulate the economy by excessive issuance of the dollar. As the resulting risks of dollar depreciation keep accumulating, the decline
in real government solvency becomes persistent, and the vulnerable
credit relationships bear increasing risk of breaking due to the occurence
of emergencies and the debt limit.
In summary, Dagong views that as the negative effects from key factors affecting U.S. federal government solvency– such as the debt repayment environment and wealth creation capability, debt repayment has been increasing. Emergencies such as the fiscal cliff and the debt limit will further increase the vulnerability of government solvency.
Therefore, Dagong has put the U.S. federal government credit ratings on the negative watch list. Dagong will adjust the credit ratings according to the real circumstance to reflect the soundness of the U.S. federal government debt.