China to Downgrade U.S. Debt

Just when you thought the pain wouldn't come, the big red boot kicked in the door waiting a vintage 1953 Kalashnikov and telling you to get your lazy American ass in shape. Well, not exactly but [/embed] Dagong's threat to downgrade U.S. debt is an interesting signal. One that can certainly be interpreted differently by bears and bulls.

If the debt limit is raised and the public debt continues to grow, it will further damage the US debtpaying ability, which is a key factor in Dagong's evaluation, and we will consider loweringits ratings accordingly. If the raised limit fails to pass and the US faces default, the rating will be immediately andsubstantially downgraded

So, according to Guan Jianzhong, Chairman and CEO of Dagong. Mr. Dagong fails to recognize a crucial fact of life, however. China really has no alternative investment strategies. They must continue to buy U.S. debt. The threatened downgrade is really not much more than an attempt to get a discount on a purchase they already have to make.

As I have stated previously, the currency wars are the crucial financial event of our current era. That pretty much sucks for rational investors and people who like to analyze numbers inside and out, but it is pretty cool for those of us who like a good old fashioned Mexican Stand-Off.

America has already done a pretty good job of dragging Europe into the gutter as a result of currency competition and many have long been saying that China is the real target. Though I wouldn't agree with the policy if true, it certainly makes economic sense. China has been allowed to manipulate global economics with its Yuan stranglehold for far too long.

As the old saying goes, if you can't beat'em, join'em. With their youthful population advantage dwindling, public calls for greater wealth redistribution and the Arab Spring weighing heavily on Chinese officials' minds...this is certainly turn of events, indeed.

So what say you, folks? Am I the only here who is starting to see the (potential) brilliance of the U.S. currency strategy towards China? It does clash with my libertarian values, but I will be damned if it doesn't feel good to make the other guy squirm...

Comments (32)

Jul 14, 2011

Unless Moody's beats them to the punch...

Metal. Music. Life. www.headofmetal.com

Jul 14, 2011

"If the debt limit is raised and the public debt continues to grow, it will further damage the US debtpaying ability"
Seems reasonable to me...

Jul 14, 2011

When you owe the bank $1 million, the bank owns you.

When you owe the bank $1 trillion, you own the bank.

Completely by accident, the US has allowed China to dig itself into a hole. Meanwhile, we got ten years of all of this cheap stuff from China and they got a bunch of worthless infrastructure in return.

This isn't the US's doing, it's free-market capitalism's. Mercantilism is a dangerous road to go down that eventually ends with a bunch of worthless tulips or manufacturing infrastructure.

Jul 14, 2011
IlliniProgrammer:

When you owe the bank $1 million, the bank owns you.

When you owe the bank $1 trillion, you own the bank.

Completely by accident, the US has allowed China to dig itself into a hole. Meanwhile, we got ten years of all of this cheap stuff from China and they got a bunch of worthless infrastructure in return.

This isn't the US's doing, it's free-market capitalism's. Mercantilism is a dangerous road to go down that eventually ends with a bunch of worthless tulips or manufacturing infrastructure.

I completely agree. The only reason China is doing this is because they are pissed off and trying to make it seem like they're taking the "high road" by courageously taking this stand. I hope people see right through that and see the obvious reason that China is just pissed because they own all of our debt (or most of it anyways).

What they really should be doing is backing the U.S. up in this debt ceiling crisis to cover their own stake and so we dont default on paying them their money.

Jul 14, 2011
IlliniProgrammer:

When you owe the bank $1 million, the bank owns you.

When you owe the bank $1 trillion, you own the bank.

Completely by accident, the US has allowed China to dig itself into a hole. Meanwhile, we got ten years of all of this cheap stuff from China and they got a bunch of worthless infrastructure in return.

This isn't the US's doing, it's free-market capitalism's. Mercantilism is a dangerous road to go down that eventually ends with a bunch of worthless tulips or manufacturing infrastructure.

This is completely the fucking case. Its kind of like how I can throw about 100mph, fast as fucking shit. Atlanta thinks it signs my checks bit in reality they need me to continue filling their stands. I own their fucking balls

My drinkin' problem left today, she packed up all her bags and walked away.

Jul 14, 2011
Kenny Powers:
IlliniProgrammer:

When you owe the bank $1 million, the bank owns you.

When you owe the bank $1 trillion, you own the bank.

Completely by accident, the US has allowed China to dig itself into a hole. Meanwhile, we got ten years of all of this cheap stuff from China and they got a bunch of worthless infrastructure in return.

This isn't the US's doing, it's free-market capitalism's. Mercantilism is a dangerous road to go down that eventually ends with a bunch of worthless tulips or manufacturing infrastructure.

This is completely the fucking case. Its kind of like how I can throw about 100mph, fast as fucking shit. Atlanta thinks it signs my checks bit in reality they need me to continue filling their stands. I own their fucking balls

Oh really? lol ! this is comical. You don't think they cant find some kid in the dominican republic to do the exact same thing as you but 10x cheaper? You are expendable just like every other player on the field. Very very very few players are not expendable and that usually relates to the QB in pro football.

Because finding a great QB is very rare thus why there are only 20 or so in the entire world that can play at the NFL level and succeed. Most wash out.

Now someone who can throw and hit a baseball and play left field? or pitch 1 inning of relief? Well compared to a QB in the NFL they are a dime a dozen.

The one who does not fall, does not stand up

Jul 14, 2011
IlliniProgrammer:

When you owe the bank $1 million, the bank owns you.

When you owe the bank $1 trillion, you own the bank.

Completely by accident, the US has allowed China to dig itself into a hole. Meanwhile, we got ten years of all of this cheap stuff from China and they got a bunch of worthless infrastructure in return.

This isn't the US's doing, it's free-market capitalism's. Mercantilism is a dangerous road to go down that eventually ends with a bunch of worthless tulips or manufacturing infrastructure.

oh here we go again. What are you talking about? Mercantilism ended a long time ago replaced by Capitalism, David Ricardo's comparative advantage etc etc

Only left wing liberals believe that mercantilism is what goes on around the world today.

The one who does not fall, does not stand up

Jul 14, 2011
ProdigyOfZen:

oh here we go again. What are you talking about? Mercantilism ended a long time ago replaced by Capitalism, David Ricardo's comparative advantage etc etc

Only left wing liberals believe that mercantilism is what goes on around the world today.

LOL, then why doesn't the Renminbi float freely?

America and the West has 400 years of experience on backwards China (suckers) in all of this. (Sorry if I offended anyone from the Party) Hopefully they have learned their (expensive) lesson that if you're going to trade with the west, the only way to make money is to play by the rules.

Because finding a great QB is very rare thus why there are only 20 or so in the entire world that can play at the NFL level and succeed. Most wash out.
Now someone who can throw and hit a baseball and play left field? or pitch 1 inning of relief? Well compared to a QB in the NFL they are a dime a dozen.

This is fast becoming irrelevant. American Football quarterbacks are going to be replaced by Cricket Bowlers; in twenty years, football will become the impoverished business that Cricket and Rugby are today.

When it comes to knowledge of obscure Midwestern beers, I am 1 in 100 million. This is irrelevent to my ability to earn a paycheck, however. The ultimate question is how many people want what you produce, how badly they want it, and how many people want what those people produce. Bottom line is that everyone wants food, and the US shares an oligopoly on it with Australia, Canada, Argentina, and Russia. If this were a collusive oligopoly, corn would be at $30/bushel.

Jul 14, 2011
IlliniProgrammer:

Completely by accident, the US has allowed China to dig itself into a hole. Meanwhile, we got ten years of all of this cheap stuff from China and they got a bunch of worthless infrastructure in return.

This is a great point, I'd like to add something. Throughout history, China always produced what other nations wanted: spice, silk, etc... and now they make cars, computers, and fuzzy dice. Other nations always ended up in a harmful trade imbalance, and even Imperial Briton depleted its gold supply this way. Gold flowed into China and did not leave, but in our case, they are left holding pieces of paper.

Such is the genious of our system. If they try to extort higher interest rates, the matter will be dealt with politically, with miltary action or isolationism being just two possiblities. Neither the US nor China want that, no matter how much the commoners on each side think they could 'win' in any meaningful way.

The bottom line is that China is its own worst enemy, and attempting to wage a trade war will only work against them....and they know this. Screwing around with ratings is unlikely to happen and would only harm everyone involved....including China. They would do better to liberalize their political structure so that huge demand / supply disparities won't continue to be created by the statist economy.

And America would do best to start living within its means.....

Jul 14, 2011

This is kind of humorous actually. Never thought of it this way. We owe china so much money that China now depends on us to pay them. Hence we are back in control. America, fuck yeah!

I didn't say it was your fault, I said I was blaming you.

Jul 14, 2011

I am yound and stupid... Why, if China owns such a large amount of US debt, would it want to hurt the $ by downgrading American debt. Wouldn't that just create less of a return on their investment?

Jul 14, 2011
Conan Sobroen:

I am yound and stupid... Why, if China owns such a large amount of US debt, would it want to hurt the $ by downgrading American debt. Wouldn't that just create less of a return on their investment?

By downgrading our debt, they can "demand" higher interest rates on the bonds they buy. With higher interest rates comes lower bond prices. They're using our debt ceiling "crisis" as an excuse to gain a better foothold on the debt they already plan on buying, anyway.

Jul 14, 2011
jcness:
Conan Sobroen:

I am yound and stupid... Why, if China owns such a large amount of US debt, would it want to hurt the $ by downgrading American debt. Wouldn't that just create less of a return on their investment?

By downgrading our debt, they can "demand" higher interest rates on the bonds they buy. With higher interest rates comes lower bond prices. They're using our debt ceiling "crisis" as an excuse to gain a better foothold on the debt they already plan on buying, anyway.

So, you think they are just trying to essentially scare the market into thinking investing in American bonds is a bad idea only to lower the price of what they plan on buying either way? Isn't Moodys the only real rating that matters in this? (I know they are looking into lowering our rating already)

Jul 14, 2011

If I was china I would be trading my us debt for emerging countries' currency at a discount, specially to latin america. Latam is so shortsighted and US-cock sucking that they would probably agree to the deal.

Valor is of no service, chance rules all, and the bravest often fall by the hands of cowards. - Tacitus

Dr. Nick Riviera: Hey, don't worry. You don't have to make up stories here. Save that for court!

Jul 14, 2011

China isn't attacking anyone with an meaningful fervor anytime soon. Its the old mob mentality of why would I kill you if dead people can't repay debts.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Jul 15, 2011
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