Nov. 10 (Bloomberg) -- China’s Dagong Global Credit Rating Co. reduced its credit rating for the U.S. to A+ from AA, citing a deteriorating intent and ability to repay debt obligations after the Federal Reserve announced more monetary easing.Even if the intent behind the statement was purely punitive, a retaliation for the Fed devaluing the Dollar which forces China to devalue the Yuan, other countries and ratings agencies will have to act as if it was at least partially real.
The credit outlook for the U.S. is “negative,” as the Fed’s plan to buy government debt will erode the value of the dollar and “entirely encroaches” on the interests of creditors, analysts at Dagong, one of China’s three largest ratings companies, said in a statement.
Alternatively, the statement could be 100% real and the beginning of ratings downgrades across the world. If that happens, the interest rates demanded by investors will rise to the point that the only entity willing to buy Treasuries at current rates will be the Fed. If it comes to that, $600B will only be a downpayment.
Won't this improve exports and therefore the economy? And won't interest rates increase in response, therefore improving the attractiveness of US securities?
ReplyDeleteIn practice, what's happening is that American corporations are borrowing at these low rates and investing outside of the US. In addition to that, commodities like sugar, cotton, oil, gold, are all going way up in price, making it more expensive to build anything from them in the US.
ReplyDeleteOn the other hand, if you *produce* a commodity, it's all to the good. Since I've been involved in commodity production all my life (first dairy farming, and now metals extraction), my sympathies have tended to lie with commodity producers.
ReplyDeleteYou're absolutely right. The Aussies are loving this.
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