While the last-minute deal done in Washington to temporarily solve a looming debt default crisis has U.S. politicians cheering, the reaction in Beijing was much more subdued to say the least. Putting their money where their mouths are, Dagong Global Credit Rating Co. has downgraded America's credit rating from A+ to A with a negative outlook.
This isn't the first downgrade Dagong has conducted, either, having previously (in November of 2010) downgraded the U.S.'s credit rating from AA to A+.
“The downgrade is a result of fights between U.S. political parties over debt issues,” said Dagong Global, “which reflects the government's inability to completely solve the debt problem.” Dagong Global went on to say that “The interests of the country's creditors are short of systematic protection both politically and economically.”
Since China, who is the largest holder of U.S. debt by far with holdings amounting to $1.15 trillion (as of April 30th) might indeed consider itself “short of systematic protection”, one wonders about the country's continued willingness to buy U.S. treasuries.
One might also wonder why larger, more influential credit rating agencies such as Moody's, Standard and Poor's, and Fitch continue to maintain the United States' gold-plated triple-A rating while America seems to have little if any possibility of reining in its huge and growing debt... perhaps the fact that both Moody's and S&P are based in New York has some bearing?
Beijing-based Dagong Global has no Big Apple connections though it does have a cloud hanging over its rating decisions: China's government can't be pleased to see the value of its substantial holdings in U.S. treasuries threatened in any way. Then again, Washington itself isn't doing much to provide reassurance.
According to Xinhua, the Chinese government-owned news service, “The agency said the approval to raise the debt ceiling indicated that there will not be any positive changes in factors that will influence the country's debt-paying ability in the long run.”
Quite right: with Republicans so far successful in resisting new taxes and Democrats digging in their heels against any further cuts to entitlement programs, Dagong Global feels that Washington will not be able to completely solve the debt problem anytime soon.
Cherish that A rating while you can, creditors, because Dagong Global has got the knives out and they've shown they're not afraid to use them.