There is a T-shirt on sale in the US. It's emblazoned with a picture of George Bush and has a slogan reading: "You miss me yet? How's that whole hope and change thing working out?"
The answer is that things are not working out well if the analysis by bond ratings agency Standard & Poor's is anything to go by. That said, mutterings by ratings agencies, including Fitch and Moody's, should be taken with a pinch of salt. After all, they hardly covered themselves in glory when they failed to flag up the dangers posed by toxic subprime home loans dressed up as investment-grade bonds.
But ratings agencies can still wreak havoc by just raising an eyebrow. Standard & Poor's did precisely that by voicing concerns that the US government was not addressing its budget deficit, which could reach $1.5trn (90trn) by the end of the year.
Many wonder why it has taken ratings agencies so long to discover that something is awry with America's finances. The US hopes its cocktail of lower taxes and higher spending will help it grow out of the downturn. Admittedly, its economy is growing again – by an anualised 3.1 per cent in the fourth quarter of 2010. But it requires a leap of faith to believe public spending can be brought under control.
Meanwhile, Fitch turned on China's local currency debt. It is worried by a sharp rise in its property values, the emergence of inflationary pressures and the growth in credit, all of which could threaten China's seemingly unshakable financial stability.
World markets lurched lower with these two damning reports. They also drove gold to an all-time high of $1,500 an ounce on fears that a downgrading of US Treasuries could have consequences for countries holding US debt – including China with over $1.1trn, Japan with about $890bn and the UK with around $290bn. However, the markets' rapid recovery suggests investors are sanguine about America's ability to tackle its deficit.
Furthermore, provided the symbiotic relationship holds firm, it is unlikely China will balk at US Treasuries regardless of what ratings agencies decide.
The upshot for investors is that western economies are in decline and eastern ones on the rise – but we knew that. That is not to say that there is a shortage of investing opportunities in the West. Recent results from IBM and Tesco show that companies with the right products and services can grow regardless of how harsh economic conditions get.
David Kuo is director of Fool.co.uk