U.S. Stripped of AAA Credit Rating!...By China?...

http://www.zerohedge.com/article/us-stripped-aaa-credit-ratingby-china

By Dian L. Chu, Economic Forecasts & Opinions

Despite repeated warnings going back several years from Moody's, S&P et al that the U.S. could lose its top credit rating with ongoing fiscal deficits and heavy debts, the platinum-plated AAA rating of the United States seems all untouchable.

The top notch rating certainly has helped with continuing debt financing and bolstered the confidence of some government officials. Secretary Geithner, for example, said in a February interview that the U.S. government "will never" lose its credit rating, despite big budget deficits and a newly raised debt ceiling of $14.3 trillion.

Along came a Beijing-based rating agency--Dagong International Credit Rating Co. Its first order of business is to downgrade sovereign debt ratings on some major Western nations, while slamming its Western counterparts.

"The reason for the global financial crisis and debt crisis in Europe is that the current international credit rating system does not correctly reveal the debtor's repayment ability."

Dubbed as the world’s first “non-Western” sovereign credit rating agency, in its debut international report, Dagone (means Big Justice in Chinese) downshifted the US to AA with a negative outlook, while UK and France were given AA-; Belgium, Spain, Italy with A-.

It also rates debt risk of the US above China, and listed the US as one of the countries with exposure to increasing borrowing costs and default risks.

In June, the total US debt topped $13 trillion for the first time in history. The International Monetary Fund (IMF) projected that the U.S. deficit will stand at 64% of GDP this year, rising to just over 96% by 2020.

Concerned that high unemployment may force a double dip recession, the IMF just last week urged the United States to rein in its budget deficit.

Some see Dagong’s report as mere political propaganda by Beijing to counter the repeated pressure by the U.S. on its yuan policy. Nevertheless, the national debt by country chart (below) should say that Dagong's assessment is not entirely baseless, regardless of any possible hidden agenda.


Graph source: visualeconomics.com

Meanwhile, the flock to the U.S. treasury in recent months due to the European debt crisis--temporary in nature—is by no means a testament to America’s credit worthiness.

This downgrade, although might not carry much weight and influence on the bond market, does give a sobering glimpse into the unthinkable……, well, at least to Geithner.

Stocks Surge after Alcoa, CSX Report Strong Profits:

Stephen Bernard, AP Business Writer, On Tuesday July 13, 2010, 4:53 pm

NEW YORK (AP) -- The stock market got a shot of confidence and adrenaline from the start of second-quarter earnings season.

Investors were enthusiastic Tuesday about better-than-expected profits from aluminum maker Alcoa Inc. and railroad operator CSX Corp. The Dow Jones industrial average rose more than 145 points and the major indexes were up well over 1 percent.

There was more good news from Intel Corp. after the close of trading. The chip maker reported earnings and revenue that beat analysts' expectations, and it also raised its forecast for the year. Its stock shot up more than 5 percent in after-hours trading.

The companies, among the first to report second-quarter earnings, also issued upbeat forecasts for the rest of the year. That was heartening news for investors who have been concerned that the recovery was stalling, or that the economy might even fall back into recession.

"When we go back to earnings and fundamentals, companies are delivering," said Tom Karsten, senior managing partner at Karsten Financial in Fort Worth, Texas.

Alcoa's earnings reports are closely watched because its varied customer base provides a snapshot of a broad range of other industries. It is also a component of the Dow Jones industrial average. CSX also provides insight into economic activity because it ships a wide range of products.

Alcoa said global consumption of aluminum will grow this year by more than it had forecast just three months ago. There have been concerns that the global economic recovery will end as many European nations face mounting government debt problems and high unemployment slows growth in the U.S.

CSX, meanwhile, said it sees its the economy's upward momentum continuing this year.

Intel's results are considered a good gauge of the health of the economy since its sales are driven by consumers and businesses buying computers.

Frank Ingarra, co-portfolio manager of Hennessy Funds in Stamford, Conn., said Alcoa and CSX's results lifted the market because they hit on the two themes that traders are looking for in earnings: revenue growth and optimistic outlooks.

"That's why the earnings were so good," Ingarra said. "You saw that top-line growth and good guidance."

During the recession, companies that made money often did so by cutting costs rather than bringing in sales. So sales growth is a sign that business is indeed picking up.

The Commerce Department reported Tuesday that the U.S. trade deficit increased to its widest level in 18 months as an increase in exports was outpaced by rising imports. A jump in both imports and exports is a sign that the economy is growing.

Earnings will likely continue to dictate trading over the next few weeks as hundreds of companies release results.

According to preliminary calculations, the Dow rose 146.75, or 1.4 percent, to 10,363.02. The Standard & Poor's 500 index rose 16.59, or 1.5 percent, to 1,095.34, while the Nasdaq composite index rose 43.67, or 2 percent, to 2,242.03.

http://yhoo.it/bbZZat