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Moody’s Outlook Negative, China Downgrades

From Bloomberg:

Moody’s Affirms U.S. Rating, Warns of Downgrades

By John Detrixhe – Aug 2, 2011

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. while warning that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

The outlook for the U.S. grade is now negative, Moody’s said in a statement yesterday after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending following months of wrangling between Democratic leaders and Republican lawmakers.

Note Moody’s use of the word "now."

The compromise “is a positive step toward reducing the future path of the deficit and the debt levels,” Steven Hess, senior credit officer at Moody’s in New York, said in a telephone interview yesterday. “We do think more needs to be done to ensure a reduction in the debt to GDP ratio, for example, going forward.”

The ratio of general government debt, including state and local governments, to gross domestic product is projected to climb to 100 percent in 2012, the most of any AAA-ranked country, Fitch said in April

“While the combination of the congressional committee process and automatic triggers provides a mechanism to induce fiscal discipline, this framework is untested,” Moody’s said in its statement

“Further measures will likely be required to ensure that the long-run fiscal trajectory remains compatible with a Aaa rating,” Moody’s said. The credit rater expects a stabilization of the federal government’s debt-to-gross domestic product ratio not too far above its projected 2012 level of 73 percent by the middle of the decade, followed by a decline

As we noted last week, S&P has said that the US "would have to come up with savings of about 7.5 percent of its gross domestic product to stabilize its debt-to-GDP ratio." Those "savings" would represent around $1 trillion a year, or $10 trillion dollars over ten years.

Which is far beyond the $2 trillion dollars supposedly saved in the current deal.

China’s central bank will “closely” monitor U.S. efforts to tackle its debt, Governor Zhou Xiaochuan said in a statement today, reaffirming that his nation will diversify its foreign- exchange reserves.

China’s Dagong Global Credit Rating Co. cut its credit rating for the U.S. to A from A+ with a negative outlook, it said in an e-mailed statement today.

What an interesting tidbit to bury at the end of the article. After all, it’s not like China is an important lender for the US.

This article was posted by Steve on Wednesday, August 3rd, 2011. Comments are currently closed.

3 Responses to “Moody’s Outlook Negative, China Downgrades”

  1. River0 says:

    World markets don’t see Moody’s as a particularly brilliant group, especially after they missed the ’08 meltdown. But a consensus of opinions does count, and the overall outlook is reflected by China’s opinion. We must face the fact that we’ve lost a great deal of credibility, and it’s been caused by both Dems and the GOP. They are the Ruling Class, and they enrich themselves at our cost.

  2. proreason says:

    Where is China going to park it’s surplus now, Luxemborg?

    Sounds like it is trying to spook the US into opening the next Treasury auction at a higher price point.

    The real question is whether China thinks a mattress is a safer place for its money than US treasuries. And I think the answer is going to be that it isn’t. It’s a virtual certainty that more would be stolen within China than would be earned and paid with certainty by the US.

    But they’ll diversify, sure they will. 1 to 5% diversification. We’ll see if they can spook the wet pants in the Marxist’s admistration into blinking.

    And the rating agencies will have zero affect on any of that game. What fool thinks that China would listen to those idiots about anything.

    • tranquil.night says:

      Bingo. Endgame. The Western Left are Morons. Well, they want to demilitarize us too so what’s to distinguish their interests from the ChiCons at this point.

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