Chinese agency Dagong slashes US sovereign ratings to BBB+
China’s Dagong Global Credit Rating has assigned a BBB+ rating to the local and foreign currency sovereign credit of the US, citing a political ecology that has hindered effective government administration and the sweeping GOP tax cuts that may weaken debt repayment capacities as fiscal revenues drop.
The agency slammed the US’s high level of reliance on a debt-driven model of growth, keeping the government solvent chiefly through issuance of new debt, and has given US a negative outlook. The strongly worded report said the US is “abusing the right of issuance the US dollar as the international reserve currency.”
In a first, Dagong is also citing general flaws in the US political system, which it says is rife with inefficiencies and is suffering a decline in trustworthiness and competence, giving up these qualities to satisfy factional interests.
Dagong, established in 1994, with special permits from financial regulators, maintain a pessimistic view on the effects of Trump's tax cuts, saying they will fail to attack the root cause of the unsustainable debt-driven economy of the US, instead only exacerbating the current risk as the fiscal gap widens.
The ratings report published Tuesday, which places US sovereign bonds on a negative outlook, comes five years after Dagong, one of the first ratings firms established in China, stated that the US has derailed from the right track as faction-driven politics deter the administrators from a path focusing on economic and social development.
Dagong last downgraded the US sovereign credit to A- from A in 2013. The previous reduction was made during the Obama administration and was also attributed to national debt expanding at a pace far faster than fiscal revenues and economic growth.