Fear takes grip of the markets, investors and traders are literally selling everything today except the dollar which is bouncing after weeks of getting hammered.
Congress hasn´t been able to reach an agreement on the budget in order to raise the debt ceiling and the probability of default is making the market nervous.
However, as I have said in previous updates, the US government will lift its debt ceiling and will continue to increase its public debt to keep a high fiscal deficit and spending. It will continue doing so until the market forces it to stop with higher interest rates as it occured to Greece, Ireland or Portugal.
Right now interest rates are at historic lows and the dollar although weakened, it has enjoyed turbulence in Europe which as slowed its fall.
The US economy remains very weak and drastically reducing the fiscal deficit in order to achieve a balanced budget in the sthort term will only provoke that the country once again enters a deep recession.
The fiscal deficit is aproximately 11% of GDP and thus a sharp reduction in the deficit to 0%, drastically reducing government spending, would cause a contraction in GDP of about the same amount (11%) causing a terrible recession.
Due to this, the congress will only agree in very small budget cuts and mantain highfiscal spending that "floats" a weak economy were consumer spending is frail, unemployment is over 9% and the real estate sector remains depressed.
