Ratings agency hypocrisy continues on as S&P downgraded China over debt, but ignores U.S.’s 105% debt to GDP
On Sept. 21, S&P ratings agency downgraded China for what they determined as ‘risks involved in debt expansion’, and this move follows a similar one done by Moody’s ratings agency a few months ago against the Far Eastern economy.
However neither of these arbiters of credit worthiness have sought fit to impose the same decline on America’s own sovereign rating, and this despite the fact that the government is preparing to remove its debt ceiling altogether, and the current debt to GDP ratio is over 105%.
Four months after¬†Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how “stable” China truly is through its nationalized capital markets, moments ago S&P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth,¬†less than a month before the most important congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.
‚ÄúChina‚Äôs prolonged period of strong credit growth has increased its economic and financial risks,‚ÄĚ S&P said. ‚ÄúSince 2009, claims by depository institutions on the resident nongovernment sector have increased¬† rapidly. The increases have often been above the rate of income growth.¬† Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to¬† some extent.” –¬†Zerohedge
Perhaps now it is no longer a surprise that both China and Russia have created their own ratings agencies to complete globally against Moody’s and S&P.¬† And it is very likely the moves were done because contrary to their public stance of ‘neutrality’, Western ratings agencies are often turned into economic weapons in an attempt by Washington to increase the cost of borrowing for competitive economies.
The fact of the matter is there is a major difference between China’s debt, and that of the U.S. as the Far Eastern power owns nearly all of its debt obligations while the majority of the U.S.’s debt is held by foreigners.¬† And when you couple in another $250 trillion in unfunded liabilities created by Congress over the past few decades, then America’s AAA+ rating should have been downgraded to junk status long ago.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.