China Downgrades US Credit Rating From A- To BBB+

In its latest reminder that China is a (for now) happy holder of some $1.2 trillion in US Treasurys, Chinese credit rating agency Dagong downgraded US sovereign ratings from A- to BBB+ overnight, citing “deficiencies in US political ecology” and tax cuts that “directly reduce the federal government’s sources of debt repayment” weakening the base of the government’s debt repayment.

Oh, and just to make sure the message is heard loud and clear, the ratings, which are now level with those of Peru, Colombia and Turkmenistan on the Beijing-based agency’s scale of creditworthiness, have also been put on a negative outlook.

In a statement on Tuesday, Dagong warned that the United States’ increasing reliance on debt to drive development would erode its solvency. Quoted by Reuters, Dagong made specific reference to President Donald Trump’s tax package, which is estimated to add $1.4 trillion over a decade to the $20 trillion national debt burden.

“Deficiencies in the current U.S. political ecology make it difficult for the efficient administration of the federal government, so the national economic development derails from the right track,” Dagong said adding that “Massive tax cuts directly reduce the federal government’s sources of debt repayment, therefore further weaken the base of government’s debt repayment.” …

In a preemptive shot across the bow in the coming trade wars, last week Bloomberg reported that Beijing officials reviewing China’s vast foreign exchange holdings had recommended slowing or halting purchases of U.S. Treasury bonds. That warning spooked investors worried that sharp swings in China’s massive holdings of U.S. Treasuries would trigger a selloff in bond and equity markets globally. The report sent U.S. Treasury yields to 10-month highs and the dollar lower, although China’s foreign exchange regulator has since dismissed the report as “fake news.”

Still, Dagong was quick to point out that not much would be needed to crush the public’s confidence in the value of US Treasurys:

The market’s reversing recognition of the value of U.S. Treasury bonds and U.S. dollar will be a powerful force in destroying the fragile debt chain of the federal government,” Dagong said.

To be sure, China’s move is far more political than objectively economic, and is meant to send another shot across the bow as the Trump administration prepares to launch a trade war with Beijing in the coming weeks. Still, while both Fitch and Moody’s give the United States their top AAA ratings (and the S&P is the only agency to infamously downgrade the US to AA+ in 2011), US raters have also expressed concerns similar to Dagong‘s….

  1. The executives of fitch, moody’s and S&P should be in jail for their role in manufacturing the fraudulent housing bubble that collapsed in 2008.
  2. China is already in a corporate taxation war with the US, competitively lowering corporate taxes to goose the most superficial economic indicators at the expense of their respective groups of peasants.   China already has the US beaten at this game thanks to the traitors who pull the strings on wall street.  The USA’s room for manuvering is severely limited since our manufacturing base has largely been exported to china.
  3. Both central banks have far more in common than their respective political puppets.   In fact the chinese central bank may well be a subsidary of the same european dynasties which control the federal reserve.   So this conflict is largely a PR mirage for the benefit of the clueless, which will probably be used to steal what land remains in the hands of the american peasants.
  4. Given 2) above, china is trying to maintain the ongoing extortion of the american taxpayer and wants to make sure their interest payments on fake money (US treasury “debt” and federal reserve notes) continue unabated.
  5. All of this pointless drama and handwringing could be avoided through the most glaringly obvious means: monetary reform.

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