Ring the bell for the next round…

… the currency war is not over yet.

In earlier blogposts we discussed the current situation between China and the USA. Each country tries to lower the value of its money to boost their exports hoping to gain advantages for their economy.

After the FED announced to push even more money into the US market the next move was expected by China.

Now the newly established “independent” Chinese Rating Agency “Dagong Global Credit Rating” lowered their rating for the USA by one step from AA to A+ (Welt online, 10/11/2010). Their explanation behind this step is as follows:

“The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency. The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S. Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government’s intention of debt repayment.”

American Experts are of the opinion, that this move is politically motivated and one has to question whether the Chinese Rating Agency is really independent or only again “just a tool for Chinese policy” (Paul Krugman, NY Times).

Although Dagong might not have as much influence with their Credit Ratings as the big three American Rating Agency Standard & Poor’s, Moody’s and Fitch, I think this step will still have an impact on the American economy.

And this currency war definitely does not help the overall economic situation.

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5 Responses to Ring the bell for the next round…

  1. Thanks for this post!
    I love this issue because I think all these agencies are purely hilarious.
    Why? because it is obvious that the current leading rating agencies all come from the USA and I have no doubt that there are always political interests behind their actions, so not only with the Chinese agency but even with these leading American ones.

    I recently read an interesting article where India’s second largest rating agency “CARE Ratings” came up with an interesting idea: Put all big agencies from around the world together to build a new body. Then, this body might come up with ratings which can be independent of any political influence because an international consensus would then be formed.
    Nonetheless, their idea seems to be an utopia…it could exist in a world called “Brave New Finance” though!

  2. bravenewloock says:

    Don Boudreaux from Cafe Hayek has his very own take of China’s currency politics, amongst other things stating that the American actions are entirely politically motivated, not out of a monetary necessity, as the Yuan is not really undervaluated…

  3. stuerzele says:

    Thank you for the really interesting comments. I just found an article at nasdaq.com stating, that the USA announced that they will watch the development of Chinese currency very closely.
    But, much more interesting: In the same article, a US official states that emerging economies should stop relying on exports to the US to create growth.
    Well I guess, they want to do exactly the same!

  4. rudi2020 says:

    Biggest nation of consumers in the world? US. How are they able to follow that demand without imports.
    And also their double standard: They demand revaluating China’s RMB and printing money for themselves at the same time.
    Everything nicely explained in this G20 Currency War Summary by RussiaToday.

  5. olexa5 says:

    Thanks rudi for adding this video. We have nice flow of information here. For my part, I appreciate all this work.

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