The debt problem seems pretty obvious. The more we reduce it, the lower the market will go. Because the main catalist for the gains in the market was Gov support.
If the Gov is not going to support the economy, and consumers are still paying off debt, then there is no one left to buy stuff.
I am guessing sooner or late the FED steps in with another round of QE.
Roy as usual your post makes complete sense, but I think that the Gov't will Not let the markets fail or drop severely no matter what. They pull some stuff "out of the hat" to prevent this 2nd dip from manufesting. Shawn
roy i have a different take - the confidence fairies think that reining in deficits would help by shrinking federal borrowing, thus freeing up capital for private use. however since there corporations are sitting on trillions of dollars right now how is government spending crowding them out? and btw they also think that deficit deal will be short term drag on economy.
on the other side the Keynesian economists who are prediction .03 to .04 drag on economy in 2012 - well since yearly growth was .04 last quarter - do the math ! this deal just put us into recession!
On top of that - the torturous, and bitter fight for something that previously was just a small clerical procedure has spooked the markets - which i find ironic .
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