A Chinese ratings house is making a dramatic and economically dangerous claim -- that America is already "defaulting" on its enormous debt. While the ratings company is speaking more figuratively than it is literally, this is yet another round of bad news for the U.S. AFP has more:
"In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.
Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies -- eroding the wealth of creditors including China, Guan said.
This news comes as the U.S government debates raising its "debt ceiling" beyond the current $14.29 trillion limit (the federal government is estimated to hit this limit on August 2). The Chinese alarm isn't the only one ringing:
Ratings agency Fitch on Wednesday joined Moody's and Standard & Poor's to warn the United States could lose its first-class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.
A downgrade could sharply raise US borrowing costs, worsening the country's already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments.
China, a nation that currently stands as the largest owner of U.S. debt, has been worried about America's finances for some time now. The communist nation's Foreign ministry spokesman Hong Lei lectured America yesterday, saying that the government needs to craft "effective measures to improve its fiscal situation".
According to Advisor One, the world is in a quasi-panic over the current economic debate over U.S. debt:
As wrangling in the U.S. Congress continues over the debt ceiling, with Republicans insisting that a taste of default could force the White House to cut spending, the rest of the world looks on in growing horror at the prospect.
Reuters reported Wednesday that government officials all over the world, as well as large creditor nations like China, are viewing the possibility as a potential disaster the more likely it gets. On Tuesday it reported that mainstream Republicans, dismissing the idea that such a move could trigger a financial catastrophe, are beginning to espouse the idea of a technical default as a means of forcing spending cuts
Watch below for more on this ongoing debate: