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Dagong: U.S. sovereign debt crisis lingers despite increased debt ceiling

08-04-2011 13:57 BJT

BEIJING, Aug. 3 (Xinhua) -- The head of China's largest domestic rating agency said that although the U.S. Congress has approved a resolution to raise the U.S. government's debt ceiling, it does not mean the end of its sovereign debt crisis.

The lifted debt ceiling indicates that the U.S. government is legally allowed to continue operating by taking on new debts to repay the old ones, allowing it to temporarily avoid default, Guan Jianzhong, chairman of the Dagong Global Credit Rating Company, said on Wednesday.

However, this does not mean that the U.S.'s actual solvency has improved, as its sovereign debt crisis still lingers, Guan said.

Guan said that the U.S.'s economic growth continues to be weak and that there is little room for an economic growth model depending on expanding credit demand to stimulate consumption.

The slow growth of real wealth will directly limit the increase of national revenues, Guan said.

It is unrealistic to adjust the country's global strategy and damage the country's national welfare in order to reduce the fiscal deficit, Guan said.

The only choice is to rely on and add debt income, due to the government's inability to improve revenue and expenditure conditions, Guan said.

It will only be a matter of time for the sovereign debt crisis to break out, unless the U.S. introduces drastic economic and social reforms, said Guan, adding that "we should not be optimistic about it."

Guan said the excessive debt of the United States is tightly connected with its credit rating.

"Credit rating results haven't changed since Moody gave the United States a AAA rating in 1949. This is the highest rating possible, and that makes it easier for the United States to borrow money," Guan said.

"The United States transformed from a creditor country to a debtor country in 1985, then to a net debtor country with a larger scale of debt that reduced its debt solvency," Guan said.

"However, rating agencies can never disclose changes in credit risks in time. Incorrect ratings contribute to the inflow of global capital to America, which is conducive to debt growth," Guan said.

"The U.S. sovereign debt crisis has shown us again that an international rating system dominated by the largest debtor state cannot be responsible for rating other countries. We should take it as a sign that we must reform the current rating system in order to control and prevent future credit crises," said Guan.

Editor:Wang Xiaomei |Source: Xinhua

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