The Real Debt Deal: What Few are Talking About
The Debt is Still Expected to Soar by Trillions

By Robert Jay - EMI
Mon, 01 Aug 2011 16:30:00 ET

The national debt is still expected to soar by trillions under the debt compromise plan.

That point is all but overlooked in the debt debate drama.

Now that Congress has voted to approve the debt deal, realize that the proposed "spending cuts" are not true reductions in the budget. They simply slow down the pace of future spending increases.

Specifically, the federal government had planned to incur $10 trillion in additional debt over the next decade. The compromise slows the spending increase to "just" $7 trillion (Politico.com, Aug. 1).

Instead of the current $14.3 trillion debt growing to $24 trillion in ten years, the debt will "only" be some $21 trillion.

So, that's the real debt deal. The government will still borrow trillions in new debt.

http://www.elliottwave.com/freeupdates/archives/2011/08/01/The-Real-Debt-Deal-What-Few-are-Talking-About.aspx

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U.S. Debt Crisis Temporarily Resolved

Sunshine Profits - August 2nd, 2011

Yesterday, the U.S. House of Representatives gave a green light to President Barrack Obama’s debt ceiling agreement with the Republicans. Today, the Senate has confirmed the deal, which was in tune with our expectations. The final compromise includes $2.4 trillion cuts over the next decade and the rise of the $14.3 trillion debt limit.

However, the general opinion is that the deal merely helps the U.S. avoid default (which would have happened today if the agreement had not been reached) as it does not tackle the main causes of the U.S. budget deficit, namely programs in the like of Medicare. What is more, most of the cuts are not coming until 2016.

Now, when the default seems further away, let’s remind why it is so scary. The worst case scenario was that the U.S. would miss payments on its bonds and default — which financial experts said would be disastrous with dire consequences around the globe. The U.S. would most likely lose its AAA bond rating for the first time leading to market panic. Ratings agency Standard & Poor's this month warned there is a 50% chance it will downgrade the U.S. within the next three months. Fellow ratings agency Moody's has also put the U.S. on review for a possible downgrade. In the long term it could push interest rates up for everyone and further weaken the dollar's position as the world's reserve currency.

After the announcement of the deal, the situation calmed down. The markets reacted positively with the U.S. dollar appreciating against main currencies. The optimism, however, may be premature as much of the uncertainty in the markets is deep rooted. This would be a bullish sign for gold in the long-term. With both the dollar and the euro in trouble, and the Swiss franc looking very expensive gold is one of the few safe havens left on the planet. Gold may dip in the short term and go into correction mode since the powers that be have reached a compromise and a new debt ceiling has been announced. But in the future it’s likely to bounce as the U.S. state situation is still shaky.

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