On October 16, 2013 EST, the U.S. Congress approves the resolution to end the partial government shutdown and raise the debt ceiling. By such means the U.S. Federal Government can avoid the default crisis for the moment. However the fundamental situation that the debt growth rate significantly outpaces that of fiscal income and GDP remains unchanged. For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency. Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future. In light of these facts, Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as “Dagong”) decides to downgrade the local and foreign currency credit ratings of the U. S., which has already been on the negative watch list, to A- from A, maintaining a negative outlook. The rationale that supports the conclusion is as follows:
1. The partial U.S. federal government shutdown apparently highlights the deterioration of thegovernment’s solvency, pushing the sovereign debts into a crisis status. The U.S. federal government announced its shutdown on Oct. 1, 2013, a radical event that reflects the liquidity shortage aroused by depleting stock of debts without the increase of new debts, directly resulting in the federal government lack of the funds for its normal function. The partial U.S. government shutdown is an inevitable outcome of its long-term failure to pay its excessive debts. During the fiscal years from 2008 to 2012, the ratio of the federal government’s stock of debts to fiscal income increased from 4.0 to 6.6. Under such circumstances, the federal government that can hardly sustain its own expenses, not mentioning collecting reliable income to cover its huge amount of debts. Substantial decrease of the U.S. government’s solvency is proven by this shutdown incident, which pushes the federal government into a crisis position of debt cliff and default.
2. Since the outbreak of the U.S. debt crisis in 2008, the deviation between the federal government's sources of debt repayments and the country’s real wealth creation capacity has been constantly broadened. The huge amount of government debts that lack the basis of repayment always stands on the brink of default, and this situation is difficult to change in the long term. The federal government debt stock increased by 60.7% between 2008 and 2012 when the nominal GDP increased by only 8.5% while the fiscal income decreased by 2.9%, which indicates that fiscal income is losing its means as the primary source of debt repayments. Because of the fact that the federal government now depends highly on borrowing new debts to repay its old ones, vulnerability of its debt chain is accumulated so that technically debt default may occur at any time. For the fundamentals of government debt repayment condition will not be essentially improved, the federal government's debt cliff will persist in the long term.
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