Chinese Whispers II

AFP report that the Chinese ratings agency (Dagong Global Credit Rating Co. Ltd.) has stated that, because the USA had allowed the Dollar to weaken, the USA is in effect defaulting on its debts.

In November last year Dagong reduced its rating on the US to A+ from AA, citing a deteriorating intent and ability to repay debt.

The Chinese are far from happy with the weakening of the Dollar, as they hold over $1Trillion in Dollar denominated debt.

This issue will cause considerable friction between the US and China.

Read More

Chinese Whispers

It seems that it is not just Portugal, Ireland, Greece and Spain (aka "PIGS") that are under the gimlet eyes of the ratings agencies.

The UK has now also come under attack from the ratings agencies. Bloomberg reports that Dagong Global Credit Rating Co., one of China's official ratings firms, has cut its credit rating for the UK by one notch to A+.

Dagong cite the UK's deteriorating ability to repay debt, much the same reason used by other agencies when they downgraded the "PIGS".

However, we are not alone, the firm also reduced its rating on the US to A+ from AA last November citing a deteriorating intent and ability to repay debt.

Cynics might argue that ratings agencies' ratings/prophecies more often than not become self fulfilling, as the very act of downgrading a country increases that country's costs of borrowing.

Were the agencies to abuse their power, there would be opportunities for individuals, companies and countries connected with them to make a lot of money at the expense of others.

Needless to say, as with other aspects of the global financial services industry, the behaviour, quality and ethics of these agencies is beyond reproach.

Read More