Events going on the in the United States are crucial to our little hamlet in the Village on the Edge of the Rainforest.
As we discussed in 2009, pretending that we are somehow immune is pure folly. Our provincial forest industry is decimated without steady US sales, ditto our mining industry. Our other big industry, tourism, also draws substantially on American travellers. Even our giant underground industry (BC Bud) focuses on Yankee customers.
So as Pierre Trudeau once said; when the elephant sneezes, Canada catches cold.
And right now not only is the elephant sneezing... he's hacking, wheezing and generally doing very poorly.
So poorly that one wonders how the debt rating agencies of Moody's, Standard & Poor’s, and Fitch can continue to give America (and other western governments) AAA debt ratings.
Those debt rating agenciees are supposed to assess the credit risk of corporations, financial instruments, and sovereign nations around the world. But their dismal performance of doing that lay at the core of the 2008 Financial Crisis... after having given AAA ratings to the mortgage backed securities that brought the world to it's financial knees.
But today another ratings agency is making headlines, and they have a slightly different view of things.
China’s Dagong Global Credit Rating Company has burst onto the scene and has stripped America, Britain, Germany and France of their AAA ratings. In the process they are accusing their Anglo-Saxon competitors of ideological bias in favour of the West.
Unlike Moody's, Fitch and Standard/Poor's, Dagong gives much greater weight to “wealth creating capacity” and foreign reserves. As a result the US falls to AA, while Britain and France slither down to AA-. Belgium, Spain, Italy are ranked at A- along with Malaysia.
Dagong gives ratings of AA+ to Germany, the Netherlands and Canada... and it ranks China on a similar level.
Debate will rage about the independence of any agency from China, but complaints about the bias of Moody's, Fitch and Poor have been prominent and accusations about not downgrading western countries, particularly the United States have been rife.
This all comes on the heels of a report from President Barack Obama's national debt commission.
Republican Alan Simpson and Democrat Erskine Bowles painted an extremely gloomy picture to a meeting of the National Governors Association
The committee said the United States has to consider curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage.
They said America's total federal debt next year is expected to exceed $14 trillion — about $47,000 for every U.S. resident.
"This debt is like a cancer," Bowles said. "It is truly going to destroy the country from within."
Simpson said the entirety of the nation's current discretionary spending is consumed by the Medicare, Medicaid and Social Security programs.
"The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans, the whole rest of the discretionary budget, is being financed by China and other countries," said Simpson.
China alone currently holds $920 billion in U.S. IOUs.
Bowles said if the U.S. makes no changes it will be spending $2 trillion by 2020 just for interest on the national debt.
"Just think about that: All that money, going somewhere else, to create jobs and opportunity somewhere else," he said.
Making matter worse, the committee has identified a truism which makes this story of paramount importance to each and every one of us. The amount of debt the United States is carrying means, “we can’t grow our way out of this,” said Erskine Bowles. “We could have decades of double-digit growth and not grow our way out of this enormous debt problem."
The commission pulls no punches and says what everyone already knows: "the nation faces a fiscal catastrophe."
One wonders if Dagong was a bit too generous with it's AA rating for America?
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