While the three most well-known ratings agencies, Standard & Poor's, Moody's Investors Service, and Fitch, continue to only warn about a potential downgrade, some of their smaller counterparts have already followed through. Granted, you probably haven't heard about these downgrades because the markets generally only pay attention to the big three ratings agencies. In any event, here's a look at what these smaller players had to say:
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Weiss Ratings. Among the smaller ratings agencies, Weiss Ratings has been the most critical of the lack of progress made so far on deficit reduction. In April, Weiss, which is based in Jupiter, Fla., released its first ever ratings of the sovereign debt of 47 countries, giving the U.S. debt a rating of C, or "fair." Last week, it issued a further downgrade to C-minus, or the S&P equivalent of one notch above "junk" status. In a press release, Weiss Ratings senior financial analyst Gavin Magor said: "Our downgrade today is not contingent on the outcome of the debt ceiling debate in Washington. It is driven exclusively by the numbers, which indicate that, in addition to a decline in the long-standing weaknesses we noted three months ago, the U.S. has already lost the golden halo that helped guarantee liquidity and acceptance of its government securities in global markets."
Egan-Jones Ratings Co. The only Nationally Recognized Statistical Rating Organization (NRSRO)—a distinction held by the big three agencies and given by the U.S. Securities and Exchange Commission—among the three ratings agencies listed here, Haverford, Pa.-based Egan-Jones also downgraded the U.S. last week. In March, Egan-Jones put the U.S. government on negative ratings watch—much like what some of the bigger ratings agencies have done recently. Then on July 16, it decided to lower their rating of U.S. debt from AAA to AA+. In a statement it said, "The major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending. We are taking a negative action not based on the delay in raising the debt ceiling but rather our concern about the high level of debt to GDP in excess of 100 percent compared to Canada's 35 percent."
Dagong Global Credit Rating. Based in Beijing, Dagong is also a relative newcomer in the credit rating business, but its darkening opinion of U.S. debt highlights the global attention being paid to decisions in Washington. It published its first report on global sovereign debt ratings in July 2010 when it assigned the U.S. a rating of AA. In November 2010, after the Federal Reserve launched its highly controversial second round of quantitative easing—dubbed "QE2"—in which it bought $600 billion worth of treasury securities to try to kickstart the economy, Dagong further downgraded the U.S. credit rating to A+. It said the Fed program would further erode the value of the dollar. Pending progress on Capitol Hill, Dagong has also said it's willing to further downgrade U.S. debt if nothing is done.
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In its latest statement in July, it said: "In sum, Dagong concludes that the fundamental aspect of the U.S. economy and financial health can still support its current rating, but factors including the slowdown of growth, the high financial deficits and rising of debt dependency place the U.S. actual ability and intention to repay its debts on a descending track. Dagong will look closely at any change in the U.S. economy, finance and government budget. If during the surveillance period there is no significant event that substantially improves U.S. ability and intention to repay debts, Dagong will downgrade the sovereign credit of the United States to an appropriate level."