The shutdown of the federal government came to an end Wednesday night after a 16-day standoff between Congressional Republicans and President Obama over the budget and the Affordable Health Care Act. Lawmakers agreed to a plan to fund the government through January 15 and to raise the federal borrowing limit through February 7. The president signed the bill in the early hours of Thursday morning, shortly before the Treasury’s deadline to raise the debt ceiling.
Furloughed federal workers will head back to work this morning. Government offices and national parks that had been closed during the shutdown will reopen. And America will be able to pay its bills into the new year. But has the already U.S. irreparably tarnished its own reputation?
Investor Warren Buffett told CNBC yesterday that “creditworthiness is like virginity,” meaning it can only be lost once. Dagong, a ratings agency in China, has downgraded the U.S.’s sovereign credit rating — despite last night’s deal. And while it doesn’t have the stature of Moody’s or Fitch, it’s something to take seriously.
“It’s a vulnerable time right now for the U.S. economy, and China and its ratings agencies are in attack mode,” says Marketplace’s Rob Schmitz from Shanghai. “Before the Dagong downgrade, we saw a pretty vicious attack of America’s role in the world in an editorial written in Xinhua, China’s state news service, which declared an end to Pax Americana. It was only written in English and it was meant for a foreign audience.”
Even so, Schmitz says the U.S. dollar will still remain the reserve currency of the global economy for the time being — downgrade or not.
“Third quarter figures show that China now has nearly 3.7 trillion US dollars in its foreign exchange reserves, and this figure represented the highest quarterly growth in Chinese investment in U.S. debt in two years,” Schmitz says. “[China’s] certainly not putting its money where its mouth is in this instance.”