Editor's note: Daryl Guppy, a special commentator on current affairs for CGTN, is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a former national board member of the Australia-China Business Council. The article reflects the author's opinions and not necessarily those of CGTN.

The U.S. market reacted strongly to the Fitch rating agency downgrade but the market has the attention span of a goldfish, so the impact will probably be short-lived. A decade ago, Standard and Poor's (S&P) also downgraded its rating for the U.S. economy. The short-term reaction was soon overwhelmed by other factors and the rating downgrade was quickly forgotten.

Whilst the U.S. market may quickly shift its attention elsewhere, the Fitch downgrade reflects a wider global concern about the state of the U.S. economy and the impact of the internecine political warfare on the ability of the economy to recover.

In making the downgrade from AAA to AA+, Fitch cited government debts as the main reason behind the downgrading. For global observers, this was a welcome touch of reality. The U.S. appetite for debt is apparently insatiable. The debt ceiling is always meaningless, and it is always raised. This constant lifting has been tolerated in global debt markets because, until recent years, the U.S. has acted responsibly, or at least appeared to do so, when it comes to meeting the obligations of the exorbitant privilege conferred by the dollar's position as the major global reserve currency.

That changed with former U.S. President Donald Trump as he weaponized the dollar and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) international trade settlement system. This was an ongoing abuse of the obligations associated with the privileged position of the U.S. dollar. Global leaders have become increasingly worried by U.S. President Joe Biden's continuation of this trajectory.

The constant standoffs on the debt ceiling erode global confidence in the U.S. standards of fiscal management. The U.S. doesn't seem to worry about this, but the world is less prepared to fund U.S. extravagance and military adventurism. The result has been increased interest in alternative trade settlement processes built around the yuan.

The U.S. seems oblivious to these global concerns. The S&P 500 index has rebounded strongly and is moving toward its previous highs.  Markets don't seem to care about the deep-seated political divisions tearing their community apart. And markets seem not to care about indictments against Trump, his continued impacts on the foundations of the U.S. political system. Markets seem happy to ignore Ukraine and the rest of the world, although fear of China makes a regular appearance.

The reality is that the U.S. economy is an economy propped up by protectionist tariffs against China and protectionist support embodied in the CHIPS and Science Act. The genuine and severe economic problems are hidden or ignored and the market indexes reflect this state of financial fantasy.

The Fitch downgrading is a warning shot but by itself it will have little impact on the underlying approach to the economy. We saw this when S&P downgraded their U.S. ratings. The problems they identified a decade ago have not gone away. In fact the very same problems remain and have simply grown and grown. 

The Fitch downgrade is expected to prompt short-term fluctuations in the dollar and market indexes. Smart traders will "fade the trend," buying on the dip in anticipation of a resumption of the longer-term uptrend. The Fitch downgrade is unlikely to trigger any major change in the secular or long term trend.  

This muted reaction is likely to change if a second major rating agency also chooses to downgrade. If both S&P and Moody's joined the Fitch downgrade then we would see significant impacts on markets and an accelerated diversion of capital funding away from U.S. debt instruments. The cost of servicing U.S. debt would soar, sending it down the path taken by other failed economies. 

This, however, is a remote prospect because U.S. political and economic leadership are in denial. U.S. Treasury Secretary Janet Yellen called Fitch's move "arbitrary." Yellen says Fitch is using outdated data but it is the same data that the Federal Reserve uses. The Fitch call is a courageous recognition of reality rather than political denial of economic and social reality. 

This is a tariff protected economy, not a competitive economy. The economy is also protected by U.S. control of the SWIFT trade settlement system and weaponization of the dollar with sanctions. A tariff protected economy grows fat and lazy because it allows no genuine competition. This hastens economic and political decline, opening the door to and enabling, true global competitors. 

The Fitch downgrade is a burst of reality in the fantasy-land of a protected economy, and an urgent call for the U.S. to wake up and engage with the world, and in particular with China, on terms that promote genuine economic competition rather than protected hegemony. 

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