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Sunday, July 31, 2011

Down, Down, Down to the Bottom of the Debt Pool

     Over the last week the market has steadily slid down hill due to the uncertainty in the debt crisis.  The real question is it too little, to late if the Congress comes up with a deal.  Tonight when the Asian markets open it will slowly unfold if the damage is already done.  While I hate to keep ranting on it the debt crisis is real. To put it in perspective a little.  In 1929 when the crash started the stock market was worth $89, 668,276,854 and by July 1st 1932 the market had shrunk to $15.633,479,577.  The market was only worth about 16% of its original value.  In this day and age the government borrows 40% of every dollar it spends. In other words $40 of every $100 dollars is carrying and interest charge.  Having been through a bankruptcy myself.  I understand you can juggle and switch from the left hand to the right for so long.  Sooner or later a day of reckoning comes.  The banks figure out what you are doing and they cut you off.  If America loses its triple A credit rating countries might decide we are no longer such a safe haven. There are sixteen major countries with AAA ratings and some pay more interest than the United States.  Many investors invest in America because of the feeling of security.  If we default that security is no longer gauranteed.  If the money starts  going to where the interest rates are higher America's economy will collapse.  If America can not borrow it can not survive.  At least not at the level we do now.   Cuts will have to be made and they will be hard cuts.
Our biggest creditor is China.  However if the dollar starts to fall they may decide the cost is more than they are willing to pay.  America is treading on very thin ice.  They believe they have till the 2nd of August, but if the markets open low around the world tonight it may create a load that breaks that thin ice.  Countries do not want to wait till the last minute and be the one left holding and empty bag.  Either way the damage is already done.  The political incompetence and unwillingness to do what needs to be done has insured the present economic hardship will go on for a long time to come. The dollar is already sliding on world markets.  A falling dollar makes everything we buy cost more.  Coffee, sugar, oil, and everything else.  It also makes our products cost more and  less competitive in world markets.  This is not rocket science.  I hate to keep harping on it, but regardless what happens, times will get harder for the average working American and it is because of greed and incompetence.  We will survive in the long run, the good days may be behind us.

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