Dagong Bangs the Gong on U.S. Debt

My latest column from the Washington Times:

The big three credit-rating agencies that totally missed the meltdown of the subprime mortgage market – Moody’s, Standard & Poor’s and Fitch – still give the United States a AAA credit rating. But there’s a newcomer in the credit-rating game – Dagong Global Credit Rating – which has a very different view of the strength of U.S. finances.

Beijing-headquartered Dagong, the dominant credit agency in China, is pushing into international markets. This summer, it rated the sovereign debt of 50 nations making up 90 percent of the world’s economy. While Americans still tend to regard U.S. Treasuries as the “safest investment in the world,” Dagong gave our debt a mere AA – lower than that of 11 other countries (including China, which it awarded an AA+). To add insult to injury, the firm declared the U.S. outlook to be “negative.”
Dagong has set off something of a hissy fit in the credit-rating world. “The Western rating agencies are politicized and highly ideological, and they do not adhere to objective standards,” Chairman Guan Jianzhong told the Financial Times in July. The company also accused U.S. agencies, which share an oligopoly enforced by government fiat, of contributing to the 2007-08 financial crisis by applying the coveted AAA rating to loads of junk subprime mortgage debt.
The chairman of McGraw-Hill, owner of Standard and Poor’s, accused Dagong of pandering to popular prejudice, insisting that S&P and the other agencies have been unfairly targeted by politicians, pundits and competitors. Also, he countered that Dagong lacks transparency in its policies and procedures.
We can debate forever whether the U.S. agencies employ more analytical rigor in the rating of their sovereign debt than Dagong, but let’s be clear about one thing: Dagong is not a chump outfit. The company boasts of more than 500 employees, including more than 200 analysts with master’s degrees or doctorates and 50 with postdoctorates. The Chinese finance ministry has directed the company to “participate in the construction of [the] Asian bond market.” Read more.

Bacon bottom line: Major global investors upon whom the United States depends to continue buying our Treasuries have a far less sanguine idea of our fiscal health than we ourselves do. I’m not saying that Dagong is correct and the U.S. rating agencies are wrong, only that the U.S. agencies do not reflect global opinion. I would be interested to know how Dagong might evaluate Virginia’s AAA debt, if it were allowed to participate in the U.S. debt-rating market. I wonder how they might view a state economy so overwhelmingly dependent upon federal government expenditures.

Note to pre-Boomers:For those who you who miss the allusion to 1970s-era “The Gong Show” edify yourself by clicking here.

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3 responses to “Dagong Bangs the Gong on U.S. Debt”

  1. Gooze Views Avatar
    Gooze Views

    Excuse me, sir, but do you really believe that Dagong, a component of the Chinese Government (still Communist last time I checked) is supposed to be the wake up call to our ills?

    And this is the China that wants to block Google and cellphones? Is this a free flow of information that most nations of the world allow?
    And this somehow fits your "Boomergeddon" ideas?

    Peter Galuszka

  2. I ain't never figured out what happens when the creditors of the US say: " that's it Dude, no more money for you".

    Does it turn out differently than Greece?

    I think it turns out pretty simple.

    You tell the NEOCONS that we can no longer afford to deploy our military around the world to go after every bad guy hiding behind a bush.

    People are SS and Medicare will only get 75% of what they thought they'd get.

    Those who were expecting free Viagara and mobility scooters will find themselves having to fork over the money out of their own pockets.

    If you want 100% airtight borders.. it's gonna cost you big time…

    The Military side of Hampton Roads will be 1/2 of it's glory years.

    The interstate highways will be tolled. If you want to drive solo to work every day at rush hour – it's going to cost you a pretty penny.

    In short – the "free lunch" is going to get tougher and tougher to get.

    The prescription drug ads on TV will no longer say "check with your doctor to see if if NoseOFF is right for you".

    Nope – it'll say.. check your Medicare coverage to see if it will pay for NoseOFF even after your doctor prescribes it".

    Some folks have become pretty spoiled in this country and they are in for a shock.

    Changes are coming but I'd love to see the newly-seated Republican Congress tell us all that they are going to do away with Medicare and SS.

    That would be worth watching.

    They may actually pull it off.. who knows…

  3. James A. Bacon Avatar
    James A. Bacon

    Larry, Every once in a while, I find myself agreeing with you. This is one of those times. You need to read "Boomergeddon."

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