American Debt Ceiling Compromise is a dud

Over the weekend, a lot of interesting developments happened pending the debt ceiling deal.  Gold surged to $1635 as the ever reliable safe haven was flocked to once again when the August 2 deadline drew nearer.  The lower house, congress, announced they will soon vote on a proposal, sending Gold back near 1610. But the Senate shot down their proposal just after 45 minutes, sending gold back to the $1625 area.  All the while, Wall Street kept falling and falling.

Early this morning Manila Time, Obama blinks and compromises with the Republicans was reached.  He gives in and makes some concessions, and a workable debt deal is announced and will needed to be voted on by the two houses.

This sent Wall Street futures up 180, and Gold back down to 1615, a virtual reset to Thursday’s trading activity.

Analysts estimate that only about $1 to $2 Trillion will be cut from the deficit but over a spread period of ten years.   It will probably make America’s long-run deficit problem worse, not better by not advocating for more deeper budget cuts plus the fact that they should have raised taxes.  America now owes $14 Trillion, so 2 trillion reduction over 10 years doesn’t sound like much.

This brings us back to the more worrying problem of the weakening American Economy.  We told readers last week that we were not worried at all whether or not the debt ceiling will be raised as it seemed more like grandstanding and arm twisting than anything else.  What was more cause for concern is that QE1 and QE2 appears to be NOT WORKING, as home sales data continue to remain low, jobs continue to be losing worse than expected as reported last Friday, plus manufacturing won’t pick up.  That trigger to finally define that their patient needs to be placed back into the ICU will be the moment USA’s credit worthiness will be downgraded to below AAA premium investment grade.  Borrowing costs will be higher along with interest rates.  I can already see it now, “S&P or Moody’s or both has downgraded America to AA status ………. lacking political will to enact changes” etc.

(The above reproduced in part from our exclusive daily market notes section)

Yesterday night, Dow futures catapulted up 180 in anticipation of solving this debt problem.  However, they opened only a shade higher than 100 and fell immediately after that.  The true state of affairs of the economy of America has unmasked a further layer showing weak ISM manufacturing numbers.  That is the true cause for worry.  In fact, i am for the notion that had they done a compromise that involved all of the ingredients: stop overseas wars, tax hikes, budget cuts/or limit spending, plus the arbitrary raising of borrowing ceiling, I believe they would have closed up up and away, bouncing from their 200 day ma.

In conclusion, its not so much the raising of the debt ceiling that the smart money was worried about (because it will pass in one way or another), but they were looking at what concessions AND SACRIFICES they could reach for the good of the country


  1. I do care about the USD/RMB exchange rate, down, down and down. Our money lost all the time.

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