Monday 8 August 2011

China downgrades American credit to "A"

Half a world away from the USA, China's Dagong credit rating agency can afford to be blunter than Standard & Poor.

Their view, shared by many in the West, is that the problems have not been solved but damagingly deferred; $4 trillion needs to be cut from the public budget within 5 years; QE3 is inevitable and "will throw the world economy into an overall crisis". Accordingly, on August 3 Dagong downgraded the US rating further, to "A, with a negative outlook".

If the Western rating agencies dare to echo that view (and some see last week's S&P's re-rating to AA+ as an attempt to break the news gently), it could be the trigger for a more serious selloff in the stock and bond markets. Disaster for many, opportunity for some - perhaps.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

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