Chinese credit rating agency downgrades US rating to A+

11:16, November 10, 2010      

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A leading Chinese credit rating agency yesterday downgraded the sovereign credit rating of the United States from AA to A+, claming that the U.S. government's solvency is "on the brink of collapse".

Dagong Global Credit Rating Co. assigned a negative outlook on both the local and foreign currency sovereign credit ratings of the United States, and introduced an analysis of currency stability, Dagong's unique credit rating standard, for the first time.

"The analysis of currency stability with regard to the Fed's new round of quantitative easing is the core of Dagong's analysis on the U.S. government's repayment ability," it explained.

"An overall crisis might be triggered by the U.S. government's policy to continuously depreciate the U.S. dollar against the will of creditors," the company warned.

"The serious defects in the U.S. economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency," analysts Lu Sinan and Du Mingyan wrote in the statement.

Dagong said that one of basis for the rating is that the United States' passive situation of economic development will place the U.S. economy in a long-term recession, adding that the new round of liquidity injection can not substantially reverse the trend of increasing the federal government's fiscal deficit and debt burden in the long term.

It believes that the depreciation of the dollar adopted by the U.S. government indicates that its solvency is on the brink of collapse and says it is the reason why "(the U.S. government) wants to cut its debt through the act of devaluation with the national will."

In a credit rating report released in July, Dagong predicted that deteriorating fiscal status in the United States would add depreciating pressure on the dollar and gave the United States an AA rating, while the United States is rated Aaa and AAA by Moody's Investors Service and Standard Poor's Corp.

All the top three credit rating firms, Moody's, Standard Poor and Fitch, have not introduced the fluctuation of the value of home currency as a factor in the assessment of repayment ability.

By People's Daily Online


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