China's Rating Agency Downgrades US To A+

[LegendKiller]

1 simple question for you. Do you have serious doubts about the US debt load at this time? It's just a yes or no question. If there's absolutely no doubt that it will all be paid back in full on time with no missed payments and without inflating your currency, then you get the AAA rating. If there's a chance your government will miss payments and jack the inflation rate, your credit rating is slashed down to something shittier.

To get an idea of how this works, the bond rating for Ford is B2. It is expected that company will miss payments or go belly up.

http://en.wikipedia.org/wiki/Credit_rating
Top 10 least risky countries to lend money to:
Rank Country Overall score
1 Norway 94.05
2 Luxembourg 92.35
3 Switzerland 90.65
4 Denmark 88.55
5 Finland 87.81
6 Sweden 86.81
7 Austria 86.50
8 Canada 86.09
9 Netherlands 84.86
10 Australia 84.16

It isn't "expected" for a company to default at a B2 level, there is a probability of default, approximately 1 in 5 for a B2 within 5 years. Ford hasn't defaulted on its debt since being B2, so it works on statistical averages, nothing more, nothing less.

As far as the rest of those countries, so what? The article linked in wiki, showing the methodology, highlighted differing opinions, especially when it came to measuring risk in the US.

The Nordic countries have erected their own barriers to China, if you look at their biggest trading partners they are less influential. They have also accepted lower growth coupled with lower population growth, as well as higher taxes with growth fueled by internal investment.

The US has chosen a bit different path but not an unsustainable one. I do not think that the US is doomed, nor do I believe the AAA isn't warranted. Not all AAA bonds are created equal and the PD of all bonds aren't the same, it is a threshold.

As far as this joke of a ratings report, I wouldn't doubt the Chinese rating agency is owned by the government, yet another propaganda tool.

 

[Darwin333]

What basic necessities are needed?

Food, shelter, water, all are made here. Consumer goods, such as clothes, are made in India, Thailand, Vietnam already. Electronics in Malaysia among others.

We do not need China, China needs us far more.


They only buy US debt because they must, not because they want to.

I am rather amused that you left "energy" off of your list, in my opinion purposely.

We might not get a ton of it from China but that doesn't stop the price from going up. I don't think we get oats or eggs or corn from them either but ain't it a sonofabitch that those are taking a rocket shot too? Copper? Silver?

BTW, I am really curious to know exactly who you believe is going to roll our existing debt AND fund our new debt if they pull out?

 

[Darwin333]

As far as this joke of a ratings report, I wouldn't doubt the Chinese rating agency is owned by the government, yet another propaganda tool.

Oh the irony.... Do we really have the nerve to call someone elses rating agencies a joke?

 

[LegendKiller]

Don't we need them to buy our bonds? Besides Bernake and the Fed, who else is going to buy a trillion+ a year plus the enormous amount of rollover which is about 1/4-1/5 of our ENTIRE debt (at least the debt that we are legally obligated to pay others) a year added to the new borrowing. I just round it down to a "shitload".

Hypocrisy aside, I assume you are in favor of QE2? After all, its purpose is to cover the losses of the industry you work in.

In your own opinion, what do you think the recent ramp in commodities will do to the poor and middle class and do you think that QE1, QE2, and the actions of the Fed in general had the slightest thing to do with that ramp?

As I have asked before, do you think linking me to my "industry" in any way makes me think that you're right? You constantly attempt to do this and for what purpose? It doesn't advance your argument at all.

We don't "need" them to buy our debt. They *HAVE* to buy it as a function of them having a trade surplus with them. They sell us shit in dollars, those dollars must be invested into something, otherwise they would have to sell the dollars, dropping the dollar value, making their goods less attractive.

They are circumventing the natural trading mechanism of balancing by buying the dollar assets *AND* pegging their currency to the dollar. They *HAVE* to do this in order to bootstrap their own economy into a consumerist one, propelling their poor into middle class to get exactly where we are now. They *HAVE* to do this, else they will forever be a poor economy.

Yes, they *HAVE* to buy US debt. However, we don't *HAVE* to buy their trash.

I have mixed feelings on QE2. On one hand stability is needed and this might improve things. On the other, it's something that hasn't been used historically and the distortions in the market may not be worth it.

This goes back to my first point. If you haven't seen already, my rationalization of some of the past 3 years is far more logical than you give me credit for. I don't pretend to accept everything "my" industry has done in the last 3 years, but it's done and we have to pick up the pieces.

I do not think the ramp up in all commodities can be attributed to QE2, as they have gone up relative to all major currencies, this alone indicates that it's not monetary but price inflation. If you look at the issues with crops right now there are a lot of headlines about how shitty crops are right now.

 

[LegendKiller]

Oh the irony.... Do we really have the nerve to call someone elses rating agencies a joke?

Based upon what? The housing crisis?

Tell me, how many asset classes, outside of RMBS and CMBS, evidenced large amounts of defaults?

Trade receivables? Nope.
Credit cards? Only advanta, otherwise every other trust is OK.
Auto Loans? Nope.
Auto Leases? Nope.
Equipment Loans? Nope.
Equipment Leases? Nope.
CLOs? Nope.
Fleet Leases? Nope.
Rental Cars? Nope.

Hmmm....

 

[LegendKiller]

I am rather amused that you left "energy" off of your list, in my opinion purposely.

We might not get a ton of it from China but that doesn't stop the price from going up. I don't think we get oats or eggs or corn from them either but ain't it a sonofabitch that those are taking a rocket shot too? Copper? Silver?

BTW, I am really curious to know exactly who you believe is going to roll our existing debt AND fund our new debt if they pull out?

Not purposely, just carrying forward your "store shelves" thought.

Again, they *CANNOT* pull out. The communist party would be overthrown within days. They know it, we know it.

Even if they did pull out, we would likely have to default on the debt, but they would also be in anarchy. Eventually we would likely be able to trim down our deficit significantly, restructure, and exit.

 

[LunarRay]

BTW, I am really curious to know exactly who you believe is going to roll our existing debt AND fund our new debt if they pull out?

If China 'cashes' in their bond holdings what do they hold?... Dollars that are not earning is my guess... They do have a dollar denominated need, No? Oil? So if they did use these reserve currency dollars for Oil... then the Saudi have dollars and what do they do with them? Buy Euro or maybe invest them in US instruments?
Any holder of dollar instruments have reason to hold them... Until the dollar is no longer the World's reserve currency... Seems to me..

 

[BoberFett]

What basic necessities are needed?

Food, shelter, water, all are made here. Consumer goods, such as clothes, are made in India, Thailand, Vietnam already. Electronics in Malaysia among others.

We do not need China, China needs us far more.


They only buy US debt because they must, not because they want to.

As you and yours are wont to remind us, it's the ripple effect of losing a large portion of the economy. Without China, the jobs depending on that $300B/yr worth of imports vanish. What does $300B worth of imports represent? $1T worth of economic activity? More? How many retail stores sit with empty shelves for a few months? How many manufacturers here who get parts from China for assembly here find their lines stopped? How many layoffs in the affected sectors further exacerbate foreclosures?

Sure you can source it elsewhere, but supply chains aren't built overnight.

 

[BoberFett]

If China 'cashes' in their bond holdings what do they hold?... Dollars that are not earning is my guess... They do have a dollar denominated need, No? Oil? So if they did use these reserve currency dollars for Oil... then the Saudi have dollars and what do they do with them? Buy Euro or maybe invest them in US instruments?
Any holder of dollar instruments have reason to hold them... Until the dollar is no longer the World's reserve currency... Seems to me..

Americans will still accept USD. Maybe the Chinese will buy Apple and GM.

 

[Zebo]

Bankers even fucked up the grading system. WTf is AAA AA A+. I'd like to see a B, which means good in my day, is that end of the world or does it even exit is banking parlance?

 

[Scotteq]

Bankers even fucked up the grading system. WTf is AAA AA A+. I'd like to see a B, which means good in my day, is that end of the world or does it even exit is banking parlance?

Because Finance isn't High School

http://en.wikipedia.org/wiki/Bond_credit_rating

An A+ is equivalent to an A1 that Moodys would give a business.

So: Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk", but that have elements "present that suggest a susceptibility to impairment over the long term".

Yeah - Sounds about right for the USA's current positioin.

Long-term obligation ratings

Investment grade

Aaa: Moody judges obligations rated Aaa to be the highest quality, with the "smallest degree of risk".

Aa1, Aa2, Aa3: Moody judges obligations rated Aa to be high quality, with "very low credit risk", but "their susceptibility to long-term risks appears somewhat greater".

A1, A2, A3: Moody judges obligations rated A as "upper-medium grade", subject to "low credit risk", but that have elements "present that suggest a susceptibility to impairment over the long term".


Baa1, Baa2, Baa3: Moody judges obligations rated Baa to be "moderate credit risk". They are considered medium-grade and as such "protective elements may be lacking or may be characteristically unreliable".


Speculative grade (Also known as High Yield or 'Junk')

Ba1, Ba2, Ba3: Moody judges obligations rated Ba to have "questionable credit quality."

B1, B2, B3: Moody judges obligations rated B as speculative and "subject to high credit risk", and have "generally poor credit quality."

Caa1, Caa2, Caa3: Moody judges obligations rated Caa as of "poor standing and are subject to very high credit risk", and have "extremely poor credit quality. Such banks may be in default..."

Ca: Moody judges obligations rated Ca as "highly speculative" and are "usually in default on their deposit obligations".

C: Moody judges obligations rated C as "the lowest rated class of bonds and are typically in default," and "potential recovery values are low".

 

[DesiPower]

Dont they own us already? it really worrisome... our masters don't like us that much anymore... I am sad...

 

[bamacre]

Interest rates internally would increase to counter the inflation,

What would that do the interest payments on our debt?

 

[lothar]

China's trade balance: highest in the entire world
USA's trade balance: lowest in the world

Which country is more likely to pay back bonds... Hmm I wonder. Like if there's a guy making $50,000 per year and a guy who's unemployed and losing $30,000 per year, I really can't tell which one has more power to pay back loans. It's just impossible to tell.

1 simple question for you. Do you have serious doubts about the US debt load at this time? It's just a yes or no question. If there's absolutely no doubt that it will all be paid back in full on time with no missed payments and without inflating your currency, then you get the AAA rating. If there's a chance your government will miss payments and jack the inflation rate, your credit rating is slashed down to something shittier.

To get an idea of how this works, the bond rating for Ford is B2. It is expected that company will miss payments or go belly up.

http://en.wikipedia.org/wiki/Credit_rating
Top 10 least risky countries to lend money to:
Rank Country Overall score
1 Norway 94.05
2 Luxembourg 92.35
3 Switzerland 90.65
4 Denmark 88.55
5 Finland 87.81
6 Sweden 86.81
7 Austria 86.50
8 Canada 86.09
9 Netherlands 84.86
10 Australia 84.16

The same source you're quoting as a reference has USA listed much higher on the list than China.
Myth busted.
http://www.euromoney.com/Article/2675660/Country-risk-Full-results.html
People really should stop using Wikipedia as a source. The list on Wikipedia is also outdated.

 

[Trianon]

China's economy: Completely dependent on the US paying back its bonds.
USA's economy: Completely dependent on China's cheap trash.

Which country is more likely to pay back bonds? The one that isn't in uber-mega-bubble mode 100% dependent on the US to put up with its currency manipulating bullshit.

We can buy cheap trash for any number of countries in the world, they cannot sell cheap trash to every other country in the world as those countries are actually sane.

You forgot about our need to sell bonds to fund budget deficits...

 

[Trianon]

What would that do the interest payments on our debt?

Something tells me you know the answer to that question

In sick sort of way I wonder what if China did call our bluff.

 

[ichy]

They would be fucked.

But no where as fucked as you would be if they dumped your bonds.

If the Chinese dumped US bonds then they'd be equally fucked. It's like the old cliche about how if you owe the bank a hundred thousand dollars they own your ass, but if you owe them a hundred million dollars you own theirs.

 

[halik]

And the world laughs...


http://noir.bloomberg.com/apps/news?pid=20601087&sid=axU3JwwSG5Rc&pos=3

I mean, really, your country is the epitome of QE as you manipulate your currency like hell to improve your economy, driving inflation into the 6-8% area and perform multi-trillion dollar stimuli to prop up your unsustainable housing economy. Yet you rate your commy bonds higher than the US?

Epic Lulz

Current Sovereign CDS

US Rated AAA which translates to A+ in chinese apparently
Slovakia A+
New Zeland AA+
China A+ translates to AA+ in chinese

Apparently the whole world is in on our evil imperialist (capitalist?) scheme to con the world into our AAA rating. Wooo...

 

[Scotteq]

http://www.nytimes.com/2010/03/16/business/global/16rating.html?_r=1



Here's a very interesting article from the International Business Times on the topic: http://www.ibtimes.com/articles/35001/20100713/us-sovereign-debt-downgraded-by-china.htm

 

[JS80]

If China stopped shipping their stuff over here, the US is as dead as they are. You think you're just going to source the consumer heart of this country from somewhere else overnight? Stores would be picked clean within a week. The retail base of this country would disappear and everything else would soon follow.

Ultimately though China needs us more than we need them. China is absolutely replaceable by India, Taiwan, SK, and Vietnam, who will gladly be our manufacturing monkey slaves. And if Latin America wants to join the first world they can compete with the Asians. However, China has no alternative to the US.

 

[lothar]

They would be fucked.

But no where as fucked as you would be if they dumped your bonds.

False. I'm sure you've seen this before, but here goes.

When you owe the bank $100, it's your problem.
When you owe the bank $1 trillion, it's their problem.

Makes sense right? ^_^

 

[bamacre]

Ultimately though China needs us more than we need them. China is absolutely replaceable by India, Taiwan, SK, and Vietnam, who will gladly be our manufacturing monkey slaves. And if Latin America wants to join the first world they can compete with the Asians. However, China has no alternative to the US.

You don't think they could find a couple hundred million people wanting to consume?

I was actually quite iffy on the notion that the rest of the world's economy would decouple from the US. However, so far, that's happening. If it can continue though, well, that's the question.

 

[ericlp]

China has a lot of it's cash and investments in America ... so they can't downgrade it too much! I wonder what the "REAL" grade would be if they didn't hold any greenbacks? Probably be much lower then that I would imagine.

 

[BoberFett]

Ultimately though China needs us more than we need them. China is absolutely replaceable by India, Taiwan, SK, and Vietnam, who will gladly be our manufacturing monkey slaves. And if Latin America wants to join the first world they can compete with the Asians. However, China has no alternative to the US.

Now that the US has paid to build their industrial base, China could replace US consumption with internal consumption if they needed to bridge the gap.

 

[werepossum]

If China stopped shipping their stuff over here, the US is as dead as they are. You think you're just going to source the consumer heart of this country from somewhere else overnight? Stores would be picked clean within a week. The retail base of this country would disappear and everything else would soon follow.

We'd be much more screwed than China, who could easily switch 20% of their production to military or cut costs to the rest of the world to undercut other nations. The USA has entire chains who would lose 90% of their inventory. And we would still have to pay off the bonds held by the Chinese; default once and no one will buy our paper. And since currently we are borrowing roughly half of every dollar the federal government spends, lack of credit would cause societal collapse.