Tuesday, July 13, 2010

Chinese Rating Agency Downgrades U.S. Sovereign Debt

The Chinese firm, Dagong Global Credit Rating, has begun to cover global sovereign debt

Dagong emphasises "wealth creating capacity" and foreign reserves in its rating of sovereign debt. Based on its analysis, United States debt is not AAA, but only AA. Britain and France were ranked a notch lower at AA-.

China, the Netherlands, Germany and Canada were ranked AA+.

The emphasis by Dagong on foreign reserves and "wealth creating capacity" is interesting because the larger a country's foreign reserves and "wealth creating capacity", the less it will need to rely on money printing to resolve its debt issues. In this sense, the Dagong rating is more valuable than U.S. agency ratings. It will measure when a country is getting close to money printing to pay down its debt, and, one would think, lower the rating of such a country.

No comments:

Post a Comment