China isn’t buying it, and neither should you…
In the wake of the debt-ceiling controversy in Washington – where the politicians postured about fiscal sanity, but then raised the nation’s borrowing limit by $2.4 trillion – China’s debt rating agency has just downgraded U.S. debt.
The Dagong Global Credit Rating Company, which lowered its rating last November after the Federal Reserve decided to engage in another round of Quantitative Easing (aka money printing), has announced a further downgrade – signaling its heightened doubts over America’s long-term ability to repay its debts.
The major Asian credit rating service said its gloomy assessment – much lower than the AAA ratings given by the so-called “big three” Western agencies (Moody’s, Fitch, and Standard and Poor’s) – was inevitable given the level of market concern generated by Washington politicians’ handling of the debt ceiling.
“The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States’ declining ability to repay its debts,” Dagong Chairman Guan Jianzhong told CNN.
“Our downgrade simply reflects reality,” Guan said. “Our rating didn’t cause China to lose any money – it was the inappropriately high ratings for the U.S. by Western agencies that had led China to make risky investments in U.S. debt.”
True to form, however, the U.S. ratings agencies have not acted to downgrade – further undermining their credibility which has already been shattered by the high ratings they awarded debt instruments tied to worthless mortgages in 2007 and 2008.
What Does All This Mean to You?
Recent actions in Washington underscore just how precarious the state of our dollar – and our economy – is. The markets are continuing to respond negatively because the new debt ceiling has paved the way for government deficits and Federal Reserve money printing as far as the eye can see.
Warnings are coming from many directions, and those citizens who aren’t busily taking protective actions are playing with fire.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said this week the compromise reached by Congress won’t make a “significant dent” in the U.S. deficit.
“In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near unfathomable $66 trillion of future liabilities at net present cost,” Gross wrote in his latest monthly investment outlook. He’s reiterated his prediction of an even weaker dollar, higher inflation, and economic malaise.
Gold has risen over 3% since Congress passed its debt deal on Monday, adding to almost 8% in previous gains over the past month (during a rare summer precious-metals rally). Over the same period, the Dow Jones Industrial Average has dropped nearly 8%, bringing the Dow:gold ratio to its multi-decade low of 7. This important ratio peaked at 42:1 a decade ago, and our long-term target continues to be 2:1 or less (meaning gold may outperform the Dow by a factor of roughly 4 from this point forward).
At Independent Living, we’ve been urging you to take prudent steps to protect yourself – and profit from – this unfolding economic chaos. It is still not too late to take action to protect your assets and to make yourself more self-reliant. In fact, it’s imperative you do so now.