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U.S. and UK Sovereign Debt Downgraded by China’s Leading Credit Rating Agency, Dagong: Loses AAA Status

July 14th, 2010

A new force in assessing credit risks has emerged in spectacular fashion. Until now, Fitch, Moody’s and Standard & Poor’s have dominated the rating of investments, securities, bonds and sovereign debt. However, given the deficient performance of these three agencies in missing the sub-prime debacle in the United States, it is perhaps not surprising that a relatively new agency has arisen from the country that is now the leading creditor state within the global economy. Dagong Global Credit Rating Co. Ltd., founded in the People’s Republic of China in 1994, has issued its own rating of sovereign debt, and it’s not a pretty picture.

Dagong challenges its three Western competitors by downgrading the U.S. and UK, denying them the AAA status granted by the other ratings agencies. According to Dagong, the United States is rated AA with a negative outlook, while the United Kingdom is accorded an even lower AA-, also with a negative outlook.

When the leading credit ratings agency in the country upon which the United States and UK are most dependent on for purchasing their public debt downgrades their fiscal capacity and credit worthiness, it is a sign that the sovereign debt crisis afflicting a growing number of advanced economies is far from its peak, despite assurances from politicians and central bankers in Europe and the United States. Dagong may become an increasingly important player in the next phase of the global economic and financial crisis.

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