Posts Tagged ‘US bonds’

China downgrades US bonds as trade surplus expands

November 10, 2010

The Telegraph:

One of China’s leading credit rating agencies has downgraded United States of America government debt in response to what it sees as deliberate devaluation of the dollar by quantitative easing and other means.

If China, now the second biggest economy in the world, stops buying US government bonds this could have a very negative effect on the global recovery. The Dagong Global Credit Rating Company analysis is highly critical of American attempts to borrow their way out of debt. It criticises competitive currency devaluation and predicts a “long-term recession”.

Dagong Global Credit says: “In order to rescue the national crisis, the US government resorted to the extreme economic policy of depreciating the U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development and the management model of national economy.

The analysis concludes:  “The potential overall crisis in the  world resulting from the US dollar depreciation will increase the uncertainty of the U.S.  economic recovery. Under the circumstances that none of the economic factors  influencing the U.S. economy has turned better explicitly it is possible that the US will continue to expand the use of its loose monetary policy, damaging the interests the creditors.

“Therefore, given the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong assigns negative outlook on both local and foreign currency sovereign credit ratings of the United States.”

Max King, global investment strategist at Investec Asset Management, said: “Dagong is well respected as an independent credit rating agency which takes a more conservative view than better-known American credit rating agencies.

“It is interesting to see what people with money outside the American sphere of influence think.  Until recently, the US had been regarded as beyond reproach but now independent analysts say the position is deteriorating and likely to deteriorate further.

Meanwhile Xinhua reports the trade figures for October:

China’s exports rose 22.9 percent in October from a year earlier to 135.98 billion U.S. dollars, while imports increased 25.3 percent to 108.83 billion U.S. dollars, the General Administration of Customs (GAC) said Wednesday.

China’s trade surplus expanded sharply to 27.15 billion U.S. dollars last month from 16.88 billion U.S. dollars in September, making the October figure the second highest this year after July’s 28.73 billion U.S. dollars.

The higher-than-expected trade surplus would add pressure for the yuan’s appreciation and exacerbate the already grave inflation problem in China, said ANZ Bank economist Liu Ligang.

In the first 10 months, China’s trade surplus totaled 147.77 billion U.S. dollars, down 6.7 percent compared with the same period last year.

Foreign trade with the European Union, China’s largest trade partner, grew 32.9 percent year on year to 388.42 billion U.S. dollars in the first 10 months.

Trade with the United States climbed 29.8 percent to 310.71 billion U.S. dollars during the January-October period. China-Japan trade totaled 239.28 billion U.S. dollars, up 31.3 percent year on year.



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