China downgraded the U.S. credit rating Thursday, warning that the conditions for a potential default had not changed.
Dagong Global Credit Rating, a Chinese ratings agency, lowered its ratings for U.S. local and foreign currency credit from A to A-, and maintains a negative outlook. The move came hours after Congress funded the government and extended the country’s capacity to borrow.
"The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged. The government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future," Dagong said in a statement.
Long-term implications are uncertain. Financial analyst Julian Jessop, chief global economist for Capital Economics, speculates that a AA rating is no longer a stigma, as the UK and France already have that rating.
However, there are early indications the U.S. dollar is losing value. Gold prices surged 3.2 percent on Thursday to $1,323 per ounce, on the belief the federal reserve may continue its monitory stimulus (also known as printing more money.) The dollar fell 0.9 percent against a basket of major currencies after Dagnong downgraded the U.S. credit rating
Dagong, while not as prestigious as the more established firms like Fitch, Moody’s or Standard and Poor’s, may be the harbinger of a trend. Tuesday, before the Congressional vote, Fitch had warned it was considering downgrading the credit rating. Fitch currently lists the U.S. credit rating at AAA, but put it on “Ratings Watch Negative.” Fitch will decide at the end of the first quarter 2014 whether to downgrade U.S. credit. Standard and Poor’s downgraded U.S. credit to AA+ in 2011. In July, it upgraded its watch from negative to stable.