Chinese firm downgrades US credit rating

Updated: 2010-11-09 22:56
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BEIJING - The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy.

Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the US by one level to A+ from previous AA with "negative" outlook.

The Chinese rating agency said the downgrade reflected the US's deteriorating debt repayment capability and drastic decline of the US government's intention of debt repayment.

"The serious defects in the US economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report.

The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the US dollar and was entirely counter to the interest of the creditors.

The Federal Reserve last week decided to buy $600 billion of US Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.

"The credit crisis is far from over in the United States and the US economy will be in a long-term recession," Dagong Global warned in the report, adding a weakening greenback will cripple US capability to attract dollar capital reflow.

The Chinese rating agency said the Fed's move would not substantially reverse the trend of increasing the US federal government's fiscal deficit and debt burden in the long term.

"In essence, the US government's move to devalue the dollar indicates its solvency is on the brink of collapse," said the report.

Dagong Global noted the potential overall crisis in the world caused by the US dollar's depreciation would increase the uncertainty of the US recovery and the United States may face much unpredictable risks in solvency in the coming one to two years.

Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.