US monetary policy – “drinking poison to quench a thirst” says the Chinese ratings agency

“Drinking poison to quench a thirst” – that’s Dagong Credit, the Chinese credit rating agency’s, view of the Fed’s monetary policy decisions of late. The recent money printing initiatives (QE2) and Dagong’s perception that the US is less intent on repaying its debts were their motivation for downgrading the US from AA to A+ last week – somewhat below the AAA ratings that S&P and Moody’s have for the US.  Those US rating agencies rate Poland, Israel, Malaysia and South Korea in the A area.

Now presumably there is a fair amount of politics at work here, but nevertheless the report makes for an interesting read. It contains some of the most punchy language I’ve ever seen in a research report (“in essence the depreciation of the U.S. dollar adopted by the U.S. government indicates that its solvency is on the brink of collapse”).  It’s a good job that the report didn’t move the market in any way, or there might have been a somewhat terse conversation with the Chinese government’s reserves managers – who own a mere $868.4 bn worth of US Treasuries.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Matthew Russell

Job Title: Fund Manager

Specialist Subjects: Corporate bonds and ABS

Likes: Travelling, gym, reading & pool parties

Heroes: John Nash, John Stuart Mill, Ari Gold

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