Debt Ceiling – the Real Issues

The failure to raise the debt ceiling would not be negative regarding the creditworthiness of the US. It would signal that politics is becoming so intractable that a deadlock on the political front is reflecting the inability to confront any real debt issues. Policymaking has become insane with critical bills being stuffed with things nobody reads and is highly damaging to the long-term civil rights and security of the nation.

With that in mind, you must realize that the US debt market is the ONLY real game in town to park money internationally. The real issue is not the debt ceiling, but the increases in taxes that are more likely to turn the economy down. Earnings have come in better than expected so the big caps have been up on domestic sentiment, but they were rising as capital is shifting from Japan and Europe with far greater political uncertainties on the horizon. Here we have REAL risk of bonds going into default. France and Germany are moving apart and the French will NOT embrace austerity over socialism – ain’t gonna happen! While Japan wants to inflate, the real issue is interest rates and what a rise will do to the banks loaded with government debt.The key is to watch the global debt markets – not just domestic, We live in interesting times. They say that is the Chinese curse. Who knows?

 

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