[IchiNiSan]

AT LAST!

And this is another step to taking down the US Dollar empire!

http://www.chinadaily.com.cn/china/2010-07...nt_10092373.htm

[Sampanviking]

Finally indeed China starts to flex its financial muscles.

This will count as China is of course a major funder of Sovereign Debt and if Beijing along with other funders start to use this rating as their basis, it means that the debt cost of major western economies will rise, putting extra pressure on the need for deficit and then structural debt reduction.

It would be scream if they start marking down all Liberal Democracies on the basis of inbuilt technical political weakness!

Excellent find Ichi, this could be one of the biggest stories of the year!

[Roger604]

The prelude to the firing of missiles is economic warfare and internet warfare.

Economic warfare has begun.

[Bill]

Now if only the government would stop lending so much money to the US...

[Sampanviking]

It is fascinating reading discussions on Sovereign Debt on UK forums.

These guys just believe that the money the Government borrows appears as if by magic and will always be there for them. The idea that the lenders may put the price up based on their own assessments or even not be available at all, just does not seem to compute!

[IchiNiSan]

Sampan, thanx, and it is even more fascinating to me that sooooooo many would under-estimate the importance of one of the biggest move [attack] in reshaping the whole worldwide economic structure and landscape. This news is whimped off like it is no big deal, fortunately I am pretty sure Washington and all these European capitals trembled and felt from their chairs when they heard this news.

This along the news of China reducing the US junkbonds holdings with a whopping 4% show us again what kind of game is going on behind all these clouds of fanfare and obvious stances showing who has the biggest gun and can shoot the furthest.

[Sampanviking]

It is another step down the path of neutering the dollar. Even here though, China needs to move with caution as much of the world is still dependant on the dollar and dollar denominated International banking system. China needs to retain the good will of these nations and not do anything to fast or precipitous that could cause them unnecessary pain and make China appear reckless and irresponsible.

The fact that even the UN is questioning the effectiveness of the dollar as a reserve currency is evidence of the tangible effects that China's diplomacy is having. Once the wheels are in motion, the PRC should be able to take a step back and let others take over the driving seat on this issue, allowing China to continue to develop the Yuan as a global trade currency in both its near abroad and other key emerging markets.

[IchiNiSan]

Actually what I understood from this credit ratings development is that Hu Jintao has asked in the G20 that there should be a better, more accurate international credit rating system put in place. Obviously the G20 did not take any actions, the media (everywhere) did not (deliberately or not) take notice of this seemingly unimportant issue. So China took the initiatives to take actions in such a short period, this is decisiveness of an effective government.

Combined with the first sovereign report, just taking off the AAA ratings is symbolic enough to make this big step into taking down the US Dollar empire. Agreed we should handle it with cautions, and just make sure our holdings of those non-AAA junkbonds (actual ratings should be even lower than the current AA) and foreign reserve are big enough to keep the US and world community in check and in our pockets.

Hong Kong will play as one of the new key role in the coming years for China in bringing the Yuan to the world podium, after all, we can test and play out in HK with minimum effect on the mainland, which still need to develop the interior. You walk around the streets and sit in the KCR/MTR, open up some newspapers and you will see the "RMB" sign everywhere for all kinds of new RMB services and products by all these financial institutions. My feelings is that the next huge step in attacking the US dollar is when the 30 year old HKD-USD peg is abolished and unpegged, and this might be coming sooner than one would believe.

[IchiNiSan]

Awesome article of the month! This is written by an extremely frustrated American patriot, who knows that the US is losing the game and try to warn more to reverse the course of the direction they are heading.

http://www.globalresearch.ca/index.php?con...a&aid=20252

Quote

The fact that America spends more than the rest of the world combined on our military means that we can keep an artificially high credit rating. But ironically, all the money we're spending on our military means that we become less and less credit-worthy ... and that we'll no longer be able to fund our military.

Quote

“Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”

Quote

[I]t is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire ...

In other words, the moment the US Dollar imperialistic military lifeline of debts are being cut, the soldiers can pack up and go home.

China Calls Our Bluff: The US is Insolvent and Faces Bankruptcy as a Pure Debtor Nation
by Washington's Blog

Global Research, July 25, 2010
Washington's Blog - 2010-07-23

America's biggest creditor - China - has called our bluff.

As the Financial Times notes, the head of China's biggest credit rating agency has said America is insolvent and that U.S. credit ratings are a joke:

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview.

***

He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.

In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.

“The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.

Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.

There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.

Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.

The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.

Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a government’s fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.

“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said.

***

A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.

“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said...

China is right. U.S. credit ratings have been less than worthless. And - in the real world - America should have been downgraded to junk. See this, this, this, this, this,this, this, this and this.

China is not shy about reminding the U.S. who's got the biggest pockets. As the Financial Times quotes Mr. Guan:

“China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

Might Makes Right Economic Collapse

Indeed, Guan is even dissing America's military prowess:

“Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”

As I've repeatedly shown, borrowing money to fund our huge military expenditures are - paradoxically - weakening our national security:

As I've previously pointed out, America's military-industrial complex is ruining our economy.

And U.S. military and intelligence leaders say that the economic crisis is the biggest national security threat to the United States. See this, this and this.

[I]t is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire ...

Indeed, as I pointed out in 2008:

So why hasn't America's credit rating been downgraded?

Well, a report by Moody's in September states:

"In superficially similar circumstances, the ratings of Japan and some Scandinavian countries were downgraded in the 1990s.

***

For reasons that take their roots into the large size and wealth of the economy and, ultimately, the US military power, the US government faces very little liquidity risk — its debt remains a safe heaven. There is a large market for even a significant increase in debt issuance."

So Japan and Scandinavia have wimpy militaries, so they got downgraded, but the U.S. has lots of bombs, so we don't? In any event, American cannot remain a hyperpower if it is broke.

The fact that America spends more than the rest of the world combined on our military means that we can keep an artificially high credit rating. But ironically, all the money we're spending on our military means that we become less and less credit-worthy ... and that we'll no longer be able to fund our military.

The Scary Part

I chatted with the head of a small investment brokerage about the China credit rating story.

Because he gives his clients very bullish, status quo advice, I assumed that he would say that China was wrong.

To my surprise, he simply responded:

They're right. What's scary is that China knows it.

In other words, everyone who pays any attention knows that we're broke. What's scary is that our biggest creditor knows it.

Tricks Up Their Sleeves?

China has been threatening for many months to replace the dollar as the world's reserve currency (and see this). And China, Russia and other countries have made a lot of noises about replacing the dollar with the SDR. See this and this.

Gordon T. Long argues that the much talked about gold swaps are part and parcel of the plan to replace the dollar with the SDR. Time will tell if he's right.

China, of course, is not without its own problems. See this and this.

In related news, Germany's biggest companies are starting to shun Wall Street as too risky.


Additional readings:
http://www.chinadaily.com.cn/opinion/2010-...nt_11041627.htm
http://www.chinadaily.com.cn/bizchina/2010...nt_10093965.htm

Article embedded hyperlinks:
http://www.ft.com/cms/s/0/5632a0b8-94b7-11...144feab49a.html
http://www.washingtonsblog.com/2009/05/bil...se-its-aaa.html
http://www.washingtonsblog.com/2008/12/is-...-sovereign.html
http://www.washingtonsblog.com/2009/03/cnn...should-usa.html
http://www.washingtonsblog.com/2010/01/us-...ratio-next.html
http://www.washingtonsblog.com/2009/11/def...erhangs-do.html
http://www.washingtonsblog.com/2010/03/moo...ritain-are.html
http://www.washingtonsblog.com/2008/10/rat...r-fire-but.html
http://www.washingtonsblog.com/2009/08/com...encies-and.html
http://www.washingtonsblog.com/2009/09/cre...bribes-for.html
http://www.washingtonsblog.com/2010/07/iro...at-made-us.html
http://www.washingtonsblog.com/2010/01/mil...is-ruining.html
http://www.gazette.com/articles/mullen-472...itary-time.html
http://articles.latimes.com/2009/feb/13/na...curity-threat13
http://www.reuters.c...E51B64820090212
http://www.washingtonsblog.com/2008/11/wil...dit-rating.html
http://data.cbonds.info/comments/34176/Spe..._Assessment.pdf
http://www.washingtonsblog.com/2009/03/hea...k-proposes.html
http://www.businessinsider.com/china-yuan-...t-change-2010-7
http://www.washingtonsblog.com/2009/04/was...-new-world.html
http://www.zerohedge.com/article/guest-pos...s-roadmap-ahead
http://www.telegraph.co.uk/finance/markets...the-market.html
http://www.zerohedge.com/article/here-come...-be-repaid-full
http://www.spiegel.de/international/busine...,706321,00.html

[Sampanviking]

This is a very interesting piece from Global Research predicting the final collapse of the US banking system.

According to the author the survival of the current system is due to an elaborate system of fiscal smoke and mirrors designed to mask and hide the real scale of the loses hidden on the banks balance sheets and that the charade based on a hope of real economic revival can no longer continue and that meltdown avoided in Autumn 2008 was simply meltdown delayed; probably until about now.

Well written and compelling on many levels.

http://www.globalres...xt=va&aid=20853