All eyes are on the debt ceiling charade. It is clear now that the debt ceiling will be raised along lines that the Bubba Clinton suggested. Which means: 1. raise it $2.5T (to last past the next election); 2. an imaginary cut of $1.2T to be decided by a group of Dems and Pubs and 3. shelving tax increases.
What of new revenues ( meaning a tax increase)? Irrelevant. If all income above $250,000/y was confiscated for taxes, it would reduce the deficit by only 50%.
Don't the Pubs know that by agreeing to the Obama plan they agree to the destruction of the Dollar and put the Country on the path of certain default? Yes, the Pubs know, but they are afraid that the Dems and the Media will make their opposition to raising the debt ceiling the imaginary culprit for the bad economy and the calamities to follow.
Why is default inevitable? The US is closing in on the figure of $15T as the National Debt. If our current rate of spending continues, rating agencies will reduce our rating and bond vigilantes will demand more for buying Treasuries. Even at 10%/year, the US will have to pay $1.5T (soon $1.6T) interest on outstanding loans and finance another $1.5T in deficit. The only way out then is to print money to pay for interest and the deficit - leading to enormous rates of inflation.
Under Obama, 200,000 new federal employees have been hired and spending went up by $1.5T.
The Market is anticipating the coming financial calamity. The US Dollar broke out of a rising wedge and is once again below 74. Gold continues its slow rise and has closed above $1,625/oz. Only the XAU shows a moderation in gold price. Is it because people do not believe that gold will continue to rise? Or, are the miners being shorted again? If the latter, then the PM miners will undergo one heck of a shorts squeeze. Gold sales are usually slow in the Summer and the persistent rise in gold price is an indicator of things to come.
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