Although the United States narrowly avoided an unprecedented default following congressional approval of a last-minute compromise plan to raise the debt ceiling, China's leading credit rating agency Wednesday downgraded U.S. sovereign debt after putting it on negative watch last month.I've long been saying that the debt ceiling “crisis” is a completely manufactured one. Yes, there is a serious problem with the national debt and the current deficit (not the same thing, by the way), but the August 2 deadline itself was a completely manufactured crisis under the complete control of the people holding the gun to the head of the American people and the economy (i.e., the GOP leadership).
The Dagong Global Credit Rating Company, which lowered the United States to A+ last November after the U.S. Federal Reserve decided to continue loosening its monetary policy, announced a further downgrade to A, indicating heightened doubts over Washington's long-term ability to repay its debts.
It said the gloomy assessment -- much lower than the AAA ratings given by the so-called "big three" Western agencies Moody's, Fitch, and Standard and Poor's -- was inevitable given the level of market concern generated by the stalemate between Democrats and Republicans over the debt ceiling.
"The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States' declining ability to repay its debts," Dagong Chairman Guan Jianzhong told CNN.
"The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals," he said.
Ironically, Dagong's move could hurt not just the United States but also China, the largest foreign owner of U.S. debt with holdings worth almost $1.2 trillion.
In short, there was never any real chance that that default was going to occur, and China knows that. This is nothing but a political move, designed to poke the US in the eye for various things (e.g., allowing the Dalai Lama to visit, criticism about China's abysmal human rights, etc.) and domestic consumption (i.e., see how bad things get when you have a full-blown democratically elected republic?).
The US should seriously consider revisiting demands that China properly value its currency (i.e., let it appreciate to its natural value) and consider retaliation if it doesn't. If anyone's going to let the US economy go down in flames, it's going to be Americans, dammit! (And yeah, I do partly blame the Republicans for this one, as they've acted as if their dangerous gambit would have no consequences.)