One of the largest ratings firms in China, Dagong Global Credit Rating, has cut the US sovereign rating from A- to BBB+. That puts the American economy on par with Peru, Colombia and Turkmenistan.
“Deficiencies in the current US political ecology make it difficult for the efficient administration of the federal government, so the national economic development derails from the right track,” Dagong said, as quoted by Reuters.
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“Massive tax cuts directly reduce the federal government’s sources of debt repayment, therefore further weakens the base of government’s debt repayment.”
In December, US President Donald Trump signed a law on tax cuts that will add $1.4 trillion to the $20 trillion national debt.
Washington will only raise the debt ceiling in the future, said Dagong. “The virtual solvency of the federal government would be likely to become the detonator of the next financial crisis.”
BRICS countries – Brazil, Russia, India, China and South Africa – have complained that US-based credit agencies such as Fitch, Moody’s and S&P Global are artificially downgrading the ratings of emerging economies and turn a blind eye on economic setback in the US and other Western countries.
“Actually credit ratings are largely politically-biased. Dagong is only considering the debt repayment capacity of the central government,” Dagong’s Chairman Guan Jianzhong said in July 2016 at the St. Petersburg Economic Forum in Russia.
“In the Western countries, they use the credit rating as a tool to protect their own profits, their own interests,” Guan said, adding that the 2008 financial crisis was partly due to the wrong assessment of the US economy.
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