Putting aside the embarrassment and humiliation of losing our AAA credit rating for the first time ever, it has been and will always be the case that the market will be the final arbiter of the credit worthiness of the US. With yields down today and the US$ mixed against a variety of currencies, it’s clear that the bond market right now is focused on the prospects for global growth and its deteriorating outlook. In terms of the pressure now on DC to step up and address the country’s balance sheet, no amount of taxes will solve our excessive and growing debt obligations, it will only be dealt with thru a change in the trajectory of medicare, medicaid and social security spending. Politicians will have to put aside their constant desire to get reelected and be honest with the American people and the promises that were made and cannot be kept. The ECB is also the key story over the weekend as they will dramatically step up their bond purchase plan with now Italy and Spain on their buy list. To avoid being perceived as ‘printing money’ as the Fed has done, the ECB sterilized its buying of Greek, Portuguese and Irish debt. Due to the size of this go around likely being much larger, it puts into question of whether they will be able to sterilize at least to a significant degree. If they do not, another bout of currency debasement will take place with gold continuing its bull market. Gold knows that authorities in the developed world will choose to print their way out. Bernanke will give us his new thoughts tomorrow.
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