China Calls Our Bluff: The US is Insolvent and Faces Bankruptcy as a Pure Debtor Nation
by Washington’s Blog
July 25, 2010
America’s biggest creditor – China – has called our bluff.
As the Financial Times notes, the head of China’s biggest credit rating agency has said America is insolvent and that U.S. credit ratings are a joke:
The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.
“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview.
He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.
In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.
“The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.
Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.
There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.
Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.