The debt crisis stage enlarges


For the last two days, the debt crisis curtains have closed on the Europe set and reopened on the next act for the US. The market is in mild caution as the US congress ponder over solutions to alleviate the debt repayment. The figure i garnered from the last check was $800bn in tax raises. The Dollar-Sing exchange has spiked further to 1.20, and Gold is trading above $1600. Jim Rogers must be very happy.

Essentially, the subject in question is the raising of the debt ceiling, the limit that the US can borrow as a nation. The congress has no problems with this action, but is mixed over the method of generating government revenue. The Republicans propose pure spending cuts, while the Democrats propose spending cuts and increased taxes. Either way, the US economy is set to contract if the proposals go through, since the fiscal policies in question work in the opposite direction to the prior loose monetary policies. The economy has been hanging on a thread ever since the subprime, surviving on interest rate cuts and subsequently dollar injects. Based on the weakening outlook and the possible Moody downgrade of US treasury bonds, the USD is likely to head lower. While economic fundamentals suggest that the stock market should not perform, the stock market has actually worked contrary to common sense, rallying higher with each major devaluation of USD. The market is almost behaving like the credit card debtors who heave a sigh of relief every time they manage to clear the month's minimum sum, and tries to avoid looking at the entire sum owed.


While the SnP looks like it is forming a complex head and shoulder's pattern hinting at a huge drop, it could very well turn out to be the start of a major rally based on anything but common sense. Of course, the rallies usually start with a knee jerk reaction from the market towards the downside before the sudden reversal to the relentless climb upwards.

In my opinion based on my layman knowledge, the only way out for the US does seem like a default, followed by the good old hard-reset button. Upon the default of Greece and the ailing US economy, the shining gem is indeed in Asia, especially so when this region holds the largest amount of sovereign wealth. While trade will be affected since US is the largest trading partner with most SEA countries, an investment driven growth could take its place and see Asia emerging as a global power.