Surveillance Report for Sovereign Credit Rating
The United States of America
Sovereign Credit Rating:
Local currency/outlook: A+/negative
Foreign currency/outlook: A+/negative
Rating date: November, 2010
Analyst: LU Sinan, DU Mingyan
Local currency/outlook: AA/negative
Foreign currency/outlook: AA/negative
Rating date: June, 2010
Dagong has downgraded the local and foreign currency long term sovereign credit
rating of the United States of America (hereinafter referred to as “United States” ) from
“AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline
of the government’s intention of debt repayment.
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. Analysis shows that the crisis confronting the
U.S. cannot be ultimately resolved through currency depreciation. On the contrary, it is
likely that an overall crisis might be triggered by the U.S. government’s policy to
continuously depreciate the U.S. dollar against the will of creditors.
The rating bases for downgrading the sovereign credit rating of the United States by
Dagong are as follows:
I. The U.S. government has not introspected on the question of the
development and management model of the national economy from the global
strategic perspective, which makes it very difficult for the U.S. to fundamentally
change the passive situation of economic development.
After the outbreak of the financial crisis, the United States government has adopted a
series of policies and measures aiming at rescuing the crisis and recovering the economy,
such as: the government has purchased bad assets directly, injected capital to financial
institutions and entity enterprises seriously hit by the crisis, increased investment in social
security, education and energy, cut the tax rate of low and middle income families, and
adjusted financial supervision, etc.. Looking at the effects, the U.S. government's efforts
have achieved little success, falling short of initial expectations. The credit crunch is still
proceeding and even deepening. The development course of credit crisis has shown a
chart of debt crisis - economic crisis - monetary crisis - overall crisis. Currently, the U.S.
credit crisis has developed into the monetary crisis phase. In order to rescue the national
crisis, the U.S. government resorted to the extreme economic policy of depreciating the
U.S. dollar at all costs and this fully exposes the deep-rooted problem in the development
and the management model of national economy. It would be difficult for the U.S. to find
the correct path to revive the U.S. economy should the U.S. government fail to understand
the source of the credit crunch and the development law of a modern credit economy, and
stick to the mindset of traditional economic management model, which indicates that the
U.S. economic and social development will enter a long-term recession phase. The main
evidences for this judgment are as follows:
First, the credit expansion policy has changed both the economic fundamentals and
the operating mechanism of the U.S. economy. It is a basic state policy of the U.S. to take
credit expansion as an engine of economic development. As a result of the highly
developed domestic credit policy, the credit relations between the creditors and debtors
have become the basic economic relations between social members. In addition, an
international credit system, with the U.S. at the core, has been built up on the basis of
international credit expansion, and international credit relations have become the basic
economic relations between the United States and other members of the international
community. Thus, the formation of the U.S. economic foundation has been changed, and
credit relations have become a dominant driving force for economic and social
development, the paradoxical movement of credit relations determines the direction of
U.S. economic and social development. Due to the abuse of credit, the United States
became a net debtor country in 1985. From then on, its economic and social activities
have been completely based on the huge amount of debts. The status of the
creditor-debtor relations not only influences the development model and performance of
the U.S. economy, but also constitutes the basis for the nation to choose economic regime
and make strategic choices.
Credit expansion has also changed the forming mechanism of United States credit
demand, and the market has become the governing force to create the credit demand.
The U.S. globalization of social credit has also reached a high level, 30% of which comes
from foreign capital. Therefore, the national capacity to adjust social credit demand
through monetary policy instruments such as the money supply and interest rate has been
greatly weakened. The change in the forming mechanism of credit demand has
fundamentally strengthened the dominant role of market in the economy, which indicates
the market-oriented social credit relationship would fully influence the U.S. economic and
social development. The status of credit relationships in the United States restricts the
country’s creative capability of actual value by affecting its economic structure. The heavy
debt burden which exceeds the real debt repayment capability forces the state apparatus
to satisfy the country’s capital demand in the manner of surpassing the speed of value
creation by the real economy. The over-expansion of virtual economy is the result of the
paradoxical movement of the credit relationship in the United States. Thus, Dagong
believes that as long as the policy of credit expansion remains intact in United States, the
development model of financialization of the national economy would not be changed and
the key factors to induce long term economic recession would continue to play a role.
Second, the economic financilization and industrial hollowing-out in the United States
has broken the normal relationship between the financial system and real economy,
leading to the pursuit of the virtual wealth. As social capital was largely sucked into the
financial system, the value of a huge amount of financial assets operating away from the
underlying assets and basic economy is amplified in a surprising manner, making people
more concerned about the increase in virtual wealth and less interested in creating real
wealth; and a large number of entities were transferred overseas, resulting in a serious
industrial hallowing-out, thus the country’s creative capability of actual wealth has been
severely weakened. In addition, as the government has long relied on borrowing to carry
out its administrative functions, it would gradually lose the autonomy to manage the
economy though effective exploration of fiscal policy, and finally has to resort to the
banknote printing machine, like killing the goose that lays the golden eggs. The
improvement in the creative capability of actual wealth depends on the reasonable
positioning of the financial system and real economy, and the adjustment process will
determine the U.S. economic recovery and vision for future development.
Third, the U.S. global hegemonic strategy has consumed enormous national financial
resources, but its own capacity of wealth production is insufficient to support its huge
strategic target. The dependence on issuing national debt or U.S. dollars to carry out its
strategy not only lacks sustainability, but also becomes the root of yielding fiscal deficit. A
balance of state revenue and expenditures is advantageous to the sustained development
of the U.S. economy. However, it is almost impossible for the U.S. government to abandon
its global strategy. Hence, it will become a long-term factor to hinder the U.S. economy.
Fourth, long-term dependence on the U.S. dollar depreciation to export debt is not
only harmful to the creditor’s interests, but is also unable to solve its debt dilemma. The
problem of the national development strategy is that it causes the U.S. government to
bear a huge debt burden; however the U.S. government is unwilling to adjust its strategy
to reduce debt; rather, it believes that exporting debt through the U.S. dollar depreciation
is more compliant with the interests of the United States. Although the U.S. dollar
depreciation forces creditors to transfer their interests to the US, it will reduce the market
confidence in U.S. dollars, which may trigger the trend of selling U.S. dollars. Hence, it will
change the international currency system pattern, and the U.S. dollar hegemonic status
will be shaken inevitably, which will ultimately affect the backflow of U.S. dollars, hindering
the international financing channel of the U.S. government directly, and reducing its debt
income. The debt income concerns the prosperity of the United States. To avoid the
outbreak of debt crisis, it has to issue additional currency to solve the problem of
insufficient debt income. Hence, the U.S. dollar starts a new round of depreciation,
circulating on and on, which intensifies the risk of debt repayment inevitably.
Fifth, the reform of financial and rating systems has failed to fully reflect the essential
requirements of the credit economy, and it is difficult to establish a basic service system of
national economy that accommodates the development law of a credit economy, so as to
push the U.S. economy into a path of revival. "Financial Regulatory Reform Act" is the
main measure of the U.S. government to prevent further crisis, but its content shows that
they have not really found the root of the problems within the U.S. financial system. The
root cause of credit crisis can not be eradicated by simply resting on regulatory reforms.
The U.S. financial system has created a myriad of financial products, which attract
the continuous influx of global USD capital. Foreign capitals make up the most important
part of the U.S. economic ecosystem, and it is the driving force of this very system to
obtain capital revenue through credit expansion, but the consequent problems are serious:
(1) social capitals are encouraged to engage in financial speculations, and the pursuit of
virtual wealth rather than material wealth is not conducive for the United States to
enhance its capacity of value creation; (2) credit activities have deviated from the proper
role of supporting the development of real economy, the social credit demand is mainly
determined by the market, and the extra credit created by the market becomes hot money
that jeopardizes the country’s economic development. Furthermore, the government’s
ability to regulate social credit is largely impaired by financial innovation products; (3) the
financial system is composed of complicated credit relationships, which exacerbates the
asymmetry of credit risk information and augments the probability of systemic risks.
The development of credit socialization should not suggest any change in the
orientation of financial services. The essence of finance lies in the credit relations between
the creditors and debtors. This relationship constitutes the whole of the social credit
system, providing a system for distribution of funds for the real economy to create social
wealth. As a result of the pursuit of value adding by means of credit innovation, the scale
of social credit in the United States is in wild expansion, so that the threat of systemic
credit risk becomes a constant phenomenon. With the continued depreciation of U.S.
dollar, once its dominant position around the world is severely challenged, the financial
system that relies heavily on the strong dollar will no longer support the national economy
to operate in the current model. In this context the government will have to rebuild the
national economic system, the social cost of which will be enormous. The U.S.
government failed to make a master plan for the reform of the financial system from a
strategic level, and the principles as well as the approach of the reform are ambiguous.
The ongoing reform aimed at practical interests is one that addresses the symptoms not
the cause. Such a reform can not adapt to the historical requirement necessary for the
recovery of the U.S. economy and improving the U.S. economic system. The crisis
triggered by the failure of its credit rating system has almost destroyed the U.S. financial
system. However the current reform measures do not address the fundamental problems
and the U.S. rating system, tested by the financial crisis, is going to lose a historical
opportunity of recovery. The main problem in the U.S. credit rating system is it treats the
CRAs as general players in the market and does not encourage competition amongst
them, and such a mechanism cannot ensure the CRAs will fulfill their public
responsibilities. The U.S. credit rating systems lack of institutional guarantees to reveal
credit risk cannot provide reliable credit risk information to the public and it is falling behind
the development of the credit system. Therefore, to a certain extent, the credit system
cannot provide effective funding to support the economic recovery and development.
Dagong believes that the deep-rooted reason for the credit crisis that happened in the
United States is that the current model of economic development and management has
deviated from the laws of credit economic development. Radically, it is the problem in the
idea of governing the country and national strategy. The fact that the traditional way did
not save the United States economy further proves that the U.S. government lacks the
capability to rule the country by following the law of credit economy. The economic
recovery in the U.S. depends on the change in the way of thinking of its government;
however such a change is very difficult to realize whether the Republican or Democratic
Party is in power. Therefore, the U.S. government will follow its lingering notion,
consequently the economic recovery will last a long time and the government’s debt
repayment capability will deteriorate even further.
II. Subject to the economic development model of the United States, the credit
crisis is far from over, and the U.S. economy will be in a long-term recession.
The key economic data of the United States in three consecutive years since the
financial crisis indicates a declining or slight recovery trend in GDP, the size of the banking
industry and fiscal revenue, money supply, unemployment rate, fiscal deficit and the
outstanding government debt remain at a high level. Adopting the extreme measure of
continuous issuance of currency in the context of unconventional use of monetary and
fiscal policies to save its economy indicates that the credit crisis in the U.S. financial field
is evolving into a national crisis. The root cause is that something is wrong with the
economic development model adopted by the United States. The consequent imbalance
in the national economic structure requires the government to adjust its economic strategy
in order to realize a new balance and create a new economic architecture for economic
recovery. Therefore, Dagong analyzes and judges the prospects of the U.S. economy
from the following aspects:
First, the motivational force of the U.S. economic growth is credit expansion and at
present the huge debt is the result of long-term accumulation of credit expansion. Gone
are the basic conditions that the economic recovery is realized through repeated use of
credit expansion. Therefore, it is impossible for the U.S. economy to generate a driving
force for healthy development unless it can return to the real economy and discover new
areas of value creation. As of the end of 2009, the total debt, including that of the U.S.
government, enterprises and household, amounted to 52.3 trillion U.S. dollars, while the
GDP was just 14.3 trillion U.S. dollars in the same period. Without a massive increase in
the real value of domestic production, it is impossible for the United States to acquire the
capability of paying off its stock debt by relying solely on its current capability of value
creation. Therefore, the U.S. economy would be bound to sink even deeper into the mire if
it continues to rely on the credit expansion model of economic development.
Second, the U.S. capability of creating real wealth can not support its huge
consumption. Under the current circumstance it is difficult to increase the speed of wealth
growth; the only correct way out of debt reduction is mitigation of expenditure. Since the
U.S. government will not adjust its national strategy, it is inevitable for the United States to
increase debt or transfer debt by depreciating the U.S. dollar. The inevitability of such a
move makes the dominant factor in the lasting stagnancy of the U.S. economy. In the
components of the U.S. GDP in 2009, the financial services sector accounted for 21.4%
while the real economy sector accounted for 65%.The total output value of the U.S.
financial services industry is composed of two major parts: one is the transferred
production value, most of which comes from value distribution of participating in
international production. Another part is the inflated value originated from credit innovation,
which belongs to bubble value. In addition, due to the high economic financialization,
more than half of the profits in the real economy come from the returns of financial
activities. If we exclude the factor of virtual economy, the U.S. actual GDP is about 5
trillion U.S. dollars in 2009, per capita GDP about $ 15,000. Meanwhile, the total domestic
consumption was 10.0 trillion U.S. dollars and government expenditure was 4.5 trillion U.S.
dollars. The production capacity of real value in the national economy is the material base
to arrange social distribution and consumption. As the U.S. government arranges its
budget according to the GDP including the virtual value, its revenue must fall short of its
expenditure, so the socialization and normalization of debts will exacerbate the
environment of economic development. It is predicted that the average real GDP per year
of the United States will not reach 6 trillion U.S. dollar and per capita GDP will be less than
20,000 in the coming 3-5 years.
Third, the international division of labor and the import and export policies will make it
difficult for the United States to realize balance of international payment. Based on the U.S.
industrial structure, exports are mainly comprised of high-tech products, but the U.S. limits
the export of technical products for strategic reasons; however, what the U.S. needs the
most are daily necessities and energy, etc. In this case, imports are rigid, while exports
are elastic. On the one hand, American products are not essential items for many
countries; on the other hand, due to the policy restraint, it is difficult to effectively raise the
export volume, all of these causes the U.S. to have long-term structural trade deficit. Ever
since 1983, the current account deficit of the United States has been increasing by an
average of 20% year on year. Even if considering the stimulation effect of U.S. dollar
depreciation to export, the current account deficit is expected to maintain 4% of GDP for
the next 3-5 years. The U.S. dollars outflow through current account deficit flows back to
the United States through the capital account and financial projects, which supports its
financial system to realize the transfer of international production value to the U.S. The
U.S. imbalance of trade becomes an international wealth plundering system by
exchanging domestic necessities with the export of the U.S. dollars. It is the barometer to
measure whether the U.S. has the creative capability of actual value.
Fourth, it is difficult for the renewable energy development strategy to become the
new focus of economic growth. The renewable energy development strategy proposed by
the Obama administration is beneficial to inspiring people’s confidence in economic
recovery, but it is still impossible to become an effective power to reverse the American
economic development situation in a moderately long time, because the U.S. lacks the
strategic investment capability that would make renewable energy an industry to
transform the national economy. In addition, it is confronted with the formidable
competition from Northern Europe in terms of the new energy technologies. Therefore,
this strategy will exert very weak influence on changing the American economic structure
and development model within a long period of time.
In general, it is difficult for the current economic structure used in U.S. economic
development model to create sufficient material base to support its domestic consumption.
Virtual economy gives tremendous impact on the safety of the national economic system.
The reform of the development model of the national economy forms the decisive factor to
stop the economic recession and to realize the sustained development of the national
economy in the post-crisis era.
III. Continuous economic downturn leads to increasing risks in the financial
system and the trend of the U.S. dollar depreciation will cripple the value transfer
capability of the financial system to attract dollar capital reflow.
After the crisis, the stability of the American financial system has not improved
fundamentally; rather, it will face increasingly more serious rising trend of risks. After the
financial crisis broke out in 2008, the large scale bailout program of the Federal Reserve
and the U.S. government temporarily stabilized the financial system; the too-big-to-fail
financial institutions benefited a lot. However, there are still toxic assets such as the huge
financial derivatives hidden in the financial system waiting for effective disposal, and the
future deleveraging process will take time. In addition, the long term high unemployment
rate caused a rise in loan defaults. By the end of Q2 2010, the default rate of bank loans in
the United States has achieved 7.32%, increasing for 17 consecutive quarters, in which
the default rate in the housing loans has increased to 11.4%. Since the government
withdrew the housing stimulus measures in April 2010, the real estate market has been in
recession and the problem of foreclosure tends to become serious. It is estimated that the
banks will face the repurchase pressure of nearly 220 billion U.S. dollars worth of real
estate mortgage bond, which cannot be satisfied by the current provision for repurchase.
On the basis of 140 cases of bank failure in 2009, another 86 banks went bankrupt in the
first half of 2010 and the current number of troubled banks has reached nearly 500. The
end of 2010 is likely to witness a new rise in bankruptcy for small and medium-sized
banks in the U.S.
The U.S. monetary policy used in dealing with the crisis has almost lost its effect in
promoting economic growth. As a new economic driving force has not formed in the
United States, the declining intention of individual consumption and corporate investment
leads to the shrinking of monetary demand. Although the continuous loose monetary
policy of the Federal Reserve has largely increased the basic monetary supply, it has
failed to promote the expansion of domestic credit scale. The insufficient credit demand of
real economy combined with the bank’s mood of reluctant lending during the period of
economic downturn due to asymmetry of credit risk information, has resulted in the
decreasing credit scale in the United States. Following the 10.3% decline in the amount of
commercial bank credit and leasing in 2009, another 7.2% decline happened in the first
three quarters in 2010 on a year-on -year basis. The large amount of liquidity accumulated
within the financial system is mainly used for speculative financial transactions and
flowing into foreign markets, which is neither conducive to promoting the development of
real economy nor helpful for improving the chronic overexpansion of virtual economy.
The Federal Reserve’s monetary policy of continuous quantitative easing has
temporarily reduced the long-term debt interest rate, but the consequent dollar
depreciation trend will trigger the financial system’s long-term recession. The monetary
policy of a new round of quantitative easing launched by the Federal Reserve on
November 3, 2010 plans to release another 600 billion U.S. dollars of long-term U.S.
treasury bond by the end of June next year. The direct objective of this policy is to
maintain the current low yield of the Treasury. The continuous U.S. economic downturn
and the government’s increasing debt burden have undermined the foreign investors’
confidence in the Treasury. These investors turn to buy gold to avoid risk, which pushes
up the price of gold and increases the pressure of a rise in long-term interest rate.
Especially for a highly-indebted economy as the United States, a large amount of financial
derivative contracts in the financial system is related with the interest rate; the increase of
long-term interest rates will cause another big fluctuation in the financial system, restrict
the economic recovery, and increase the government’s burden of debt service. The
Federal Reserve’s monetary policy can temporarily decrease the long-term interest rate,
but it can also trigger the dollar’s depreciation and reduce the attraction of
dollar-denominated assets to foreign investors. From June, 2010 until now, the U.S. dollar
index has dropped about 6% and has depreciated 15% relative to the Euro, 11% relative
to the Sterling Pound, 13% relative to the Yen, 18.5% relative to the Australian dollar,
11.4% relative to the Korean Won. The dollar’s continuous depreciation will cripple the
value transfer capability of the U.S. financial system to attract the dollar capital to reflow,
and the status of the U.S. as the global financial center is on the decline. Therefore, the
room for implementing of monetary policy in the United States is increasingly being
squeezed. On the one hand, the long-standing quantitative easing policy will only play a
temporary role in decreasing interest rate, as a consequence the dollar depreciation is not
conducive to the financing requirement of the United States as the largest debtor country
and the interest assertion of the creditor will be the potential pressure to the increasing
interest rate. On the other hand, the long-term economic downtown makes it impossible
for the government to increase interest rate and regain a strong dollar policy. In this
dilemma, any policies chosen by the Federal Reserve will hurt itself. Though it is likely for
the current loose monetary policy to postpone the occurrence of the difficulties, yet in the
long run, it will be proven to be a practice resembling drinking poison to quench thirst.
IV. New round of liquidity injection can not substantially reverse the trend of
increasing the federal government’s fiscal deficit and debt burden in the long term.
The U.S. Monetary Authority launched the monetary policy of a new round of
quantitative easing, announcing the release of a large amount of federal government
Treasury bond continuously. However, it only has a limited positive influence for easing
the current embarrassed fiscal conditions of the federal government. In 2009, the U.S.
increased another 1 trillion U.S. dollars fiscal deficit in response to the financial crisis,
making the ratio of year-end fiscal deficit to GDP a record 10.6%, and consequently led to
more difficult fiscal operation for the government. Under these circumstances, the Federal
Reserve took the measure of direct debt monetization, on the one hand, financing for the
federal government’s fiscal deficit, and on the other hand, keeping the U.S. Treasury
interest rate at a low level. The federal government’s financing cost and interest burden,
therefore, are both controlled at relatively favorable levels.
Additionally, further depreciation of the U.S. dollar is inevitable due to the liquidity
increased by the monetary policy of a new round of quantitative easing, and the U.S.
government’s current debt burden, to some extent, is expected to be released. By the end
of 2009, the balance of the U.S. government’s outstanding debts reached 12.3 trillion U.S.
dollars, of which over 7.8 trillion U.S. dollars debts were held by the public including
foreign investors. This is to say, if the U.S. dollar depreciates by 1%, the actual decrease
of government’s debt burden will exceed 123 billion U.S. dollars, about 5.5% of its fiscal
revenue in 2009. The U.S. base currency will be supplied with an increase of 30% on the
existing basis in the coming eight months, therefore, in full consideration of such factors
as economic recession and slowdown of currency circulation caused by shrinkage of
private credit, a conservative estimate would be U.S. domestic inflation increase of about
1.5 percentage points and U.S. exchange rate index down approximately 10% before Q2
2011. As a result, federal debts will actually be reduced by over 250 billion U.S. dollars.
Public creditors’ interests are invisibly eroded due to the depreciation of U.S. dollar;
especially the foreign creditors will suffer even greater losses from fluctuation of U.S.
dollar exchange rate. Although the federal government could ease its actual debt burden
to some extent via this channel, its sovereign credit will be adversely affected as it ignores
the responsibilities of credit contracts and the legitimate rights and interests of creditors.
For a long time, the U.S. authority has not been temperate in its government credit
expansion, resulting in large fiscal deficit and increasingly high government debts in
consecutive years. Under current governance framework in the U.S., rigid expenditure
accounted for a larger proportion of the fiscal expenditure to satisfy its global hegemonic
strategy, which, on one side, increased the difficulty for the U.S. federal government to
optimize its fiscal expenditure structure and control deficit growth, while, on the other side,
made the federal government unable to have sufficient operating space in smoothing
economic periodic fluctuation by fiscal policy instruments so that sustainable and steady
economic growth cannot be guaranteed. After the breakout of the global financial crisis,
the weak economic growth in the U.S., increase of the fiscal expenditure and the launch of
the monetary policy of a new round of quantitative easing will all drive the U.S. debt
burden to increase further. The pattern that the U.S. government has of a high fiscal deficit
and heavy debt burden is essentially because of its terribly-flawed development model of
debt economy, which can not be significantly improved by simply increasing channels for
issuance of the U.S. dollar. Dagong predicts that the U.S. fiscal deficit will remain
moderately high in 2010 and 2011, about 10.8% and 8% of the year’s GDP respectively.
The federal debts will also increase in 2010 and 2011 on the basis of 2009, and the ratio to
the year’s GDP will be as high as 95% and 97% respectively.
V. 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, therefore it wants to cut its
debt through the act of devaluation with the national will; such a move has severely
harmed the interests of creditors. The whole world, consequently, will have to face
a period of dramatic adjustment of interest pattern.
The status of the U.S. dollar as the dominant international reserve currency
determines that its depreciation gives an inevitable impact to the interests of all creditors.
In addition to the shrinking of creditors’ assets, the utter chaos in the international
currency system triggered by the depreciation of the U.S. dollar will definitely damage the
interests of all the creditors in the world at various levels. Together with the possibility of
inflation in the future, the wealth of creditors will be plundered once again by the malicious
act of currency devaluation conducted by the U.S. government after it suffered the losses
during the financial crisis since 2007.
The value fluctuation of the world’s major currencies caused by the continuous
devaluation of the U.S. dollar will push the adjustment in world interest pattern through the
value comparison of the monetary system. The essence is to transfer the interests of the
creditors to the debtor free of charge, and that will fundamentally destroy the international
credit system and global economic system comprised of the creditor system and debtor
system, resulting in an overall crisis around the world.
Dagong believes that the occurrence and development process of the credit crisis in
the U.S. resulted from the long-standing accumulation of the contradictions in its
economic system; the U.S. debt burden can be relieved only to a certain extent through
large-scale printing and issuance of the U.S. dollar; however the consequent decline of
the U.S. dollar status and national credit will block the debt revenue channel which is vital
to the existence of the United States to a greater extent. The potential overall crisis in the
world resulting from the U.S. dollar depreciation will increase the uncertainty of the U.S.
economic recovery. Under the circumstances that none of the economic factors
influencing the U.S. economy has turned better explicitly it is possible that the U.S. will
continue to expand the use of its loose monetary policy, damaging the interests the
creditors. Therefore, given the current situation, the United States may face much
unpredictable risks in solvency in the coming one to two years. Accordingly, Dagong
assigns negative outlook on both local and foreign currency sovereign credit ratings of the