Patrick Chovanec talked to Bloomberg earlier today about the Chinese rating agency Dagong’s downgrade of US sovereign debt to Single-A. Chovanec says that Dagong is ‘hyper-sensitive’ to US risk and their downgrades to the US have resulted in a rating lower than some local Chinese government ratings where the local governments have serious liquidity issues.
Clearly this is very political as Chovanec mentions Dagong comments about the bankruptcy of American culture and the dysfunction of American political governance. Chovanec is right that the question is two-fold. A, how accurate will Dagong’s prognostications prove to be with the benefit of hindsight? And B, will Dagong have an influence on Chinese government currency and economic policy?
Good interview. Video below