Here Is Why One Credit Rating Agency Believes Russia Is Safer Than The US

Posted: June 23, 2016 in Uncategorized
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If posed with the question who has the better credit rating, the United States or Russia, most people would presumably pick the United States. However, that is not the case for Dagong Global Credit Rating Co, one of the three biggest credit rating companies in China.

Started in 1994 as a privately held company, Dagong isn’t formally tied to the Chinese government, and as Bloomberg reports, began sovereign rating services in 2010 in an effort to break the monopoly of US rating firms. Guan Jianzhong, the firm’s chairman said that the firm provides ratings for more than 110 countries, and tries to strip away political bias when assessing sovereign risk.

Actually credit ratings are largely politically biased. Dagong is only considering the debt repayment capacity of the central government” Guan said.

So how does Dagong rate the US and Russia? The firm gives Russia a rating of A with a stable outlook, and the US is tagged with a rating of A-. Dagong cut the US from A to A- in 2013 after president Obama signed legislation raising the federal debt limit. As Bloomberg notes, while the S&P stripped the US of its top grade in 2011, Moody’s and Fitch Ratings still give the US the highest credit ranking.

Guan’s reasoning is quite simple, “America’s debt is much higher than its capacity to pay and make profits“. As for Russia, Guan believes that Russia’s ability to service debt hasn’t been affected by sanctions, and the threat of a debt crisis in Russia is “smaller and lower” than in the US.

As far as the ability of the US to simply print more money, Guan says that’s actually one of the reasons the US is risky: “someone may think that the US could print more money because US dollars are accepted internationally. But that’s why they can have risks more easily, because they are transforming bad loans to the whole world.

For good measure, Guan points out what many already think: “In the western countries, they use credit rating as a tool to protect their own profits, their own interests. And that’s why we see in 2008 the financial crisis is partially because of a credit crisis, because the wrong credit rating was used.

What’s interesting is that the spread between the Russian and US 10Y is actually the narrowest since August 2014.

For those curious as to how the Beijing based firm rates China, it rates China at AAA.

“China, as you know, is a big creditor to the US. So how could the US be higher than China, it’s abnormal” Guan explained.

* * *

Dagong believes rating companies can help prevent the repeat of another global crisis by pointing investors to safe places to invest. While we’re not sure anyone can help prevent the next global credit crisis at this point, we do want to remind everyone that may have forgotten, the last time any of the major credit rating agencies tried to tell the truth about the US sovereign debt risk, it cost Standard & Poor’s $1.5 billion. If anyone would like a different point of view on the credit risk of the US, it should look at other firms that have a bit more autonomy to tell the truth.

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