Opinion

George Chen

Banking on a Triple-A rating

By George Chen
August 4, 2011

By George Chen
The opinions expressed are the author’s own.

You may think I am overly cynical today but let me first ask you a simple-yet-complicated question — what is fair?

Global ratings agency Moody’s said yesterday that the United States will retain its top AAA credit rating after President Barack Obama signed a bill to raise the federal debt ceiling. However, we heard very different opinions from China on the credit rating of the world’s No.1 economy.

A Chinese ratings agency yesterday downgraded the U.S. from A-plus to A, saying the deal to lift the debt ceiling would not solve underlying U.S. debt problems or improve its debt-paying ability over the long term.

Dagong Global Credit Rating, a relative newcomer to the sovereign debt rating realm and little known outside of China, said in a statement that the U.S. decision to raise the borrowing ceiling would  not change the fact that the growth of its debt had outpaced overall economic growth and fiscal revenue.

Global ratings agencies are “unrealistic” in their assessment of U.S. credit, overestimating the ability of the U.S to pay off debt, Dagong’s chairman Guan Jianzhong told our correspondent Lucy Hornby in Beijing. Click here to watch the full TV interview online, brought to you by Reuters Insider.

I’m not going to tell you which rating is more accurate. Readers of my column on Reuters.com are mostly professional investors, so I am sure you have your own clear thoughts on this. The opposing views from Moody’s and little-known Dagong interest me purely because I really don’t know these days who is really telling the truth in the financial market.

When almost nobody is reliable and you can only rely on yourself, it’s really quite a scary feeling, isn’t it? Let’s imagine — today the U.S. budget ceiling adjustment took place in China, or perhaps France. What would the reactions of  rating agencies be?

I am of course not a ratings expert but I don’t think it’s rocket science. It’s just a decision on a combination of numbers and facts without any subjective thoughts or emotions.

Moody’s decision to keep the United States “Triple-A” and Dagong’s decision to downgrade the U.S. (made, some people say, for the sake of Beijing’s political agenda in Sino-U.S. relations) actually mean the same thing — that such ratings are merely subjective rather than based on facts and are in fact a potential and indirect risk to global economic recovery.

In the statement issued by Dagong downgrading the United States, the firm should probably have noted in its disclaimer that the U.S. Securities and Exchange Commission had denied Dagong’s application to become an officially recognised bond rater in the U.S.

Since then, Dagong has often verbally attacked the credibility of the SEC and the U.S. government. Google the news and you will find more buzz about the bad relationship.

So, tell me, who do you believe these days?

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A Moody’s sign on the 7 World Trade Center tower is photographed in New York August 2, 2011 REUTERS/Mike Segar

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