NEW YORK, Nov 9 (Reuters) - A Chinese credit ratings agency downgraded the United States’ sovereign credit rating on Tuesday, citing the Federal Reserve’s controversial move last week to pump more dollars into the U.S. economy.
As Beijing and Washington locked horns on economic policy ahead of a Group of 20 leaders summit this week, the Dagong Global Credit Rating Co. Ltd cut the U.S. local and foreign currency long-term sovereign credit rating to A-plus from AA.
The ratings agency, which warned it might cut the U.S. ratings further, said its move reflected the United States’ “deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment.”
Tensions over economic policies between the United States and China have been revived by the U.S. central bank’s decision last week to pump an extra $600 billion into the country’s struggling economy which has further weakened the U.S. dollar. For details, [ID:nN03287174]
“The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency,” Dagong said on its website.
The Fed’s move represented a deepening of the U.S. credit crisis, it said.
“Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government’s intention of debt repayment,” Dagong said in an English-language statement.
The downgrade had no discernible impact on the price of U.S. government debt.
The United States is rated Aaa by Moodys and AAA by Standard & Poor’s and Fitch, their highest ratings grade.
Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey, said the announcement by Dagong appeared to be politically motivated ahead of the G20 summit.
“The Chinese government has interest on opinions on topics like this which are expressed by ostensibly private institutions,” he said. “So it’s hard to believe such an opinion does not reflect at least partial approval by the Chinese government.”
Dagong’s analysis was not complete “but some of the points they raise are true,” said Herbert Kaufman, professor emeritus of the W.P. Carey School of Business at Arizona State University. “It is not clear the policy tools used will be sufficient” to stimulate the U.S. economy.
Kaufman emphasized, however, that Dagong’s analysis failed to take into account the United States’ historical ability and responsibility to repay debt.
“Either they don’t appreciate it or they don’t want to appreciate it,” he said.
According to its website, Dagong Global Credit Rating Co Ltd is a specialized credit rating and risk analysis research institution founded in 1994 upon the joint approval of People’s Bank of China and the former State Economic & Trade Commission, People’s Republic of China.
For a link to the Dagongcredit website click on:here