The waiting game continues.  What is Congress going to do about the debt ceiling?  Investors are trying to anticipate what decisions will be made and what affects those decisions will have on the economy.  The markets have bounced around in every direction trying to find their way as investors try to get ahead of the next move causing widespread panic and confusion about where stocks, bonds, and the USD are going.  Congress is apparently “working hard” to negotiate a deal to solve the debt problem.  The mainstream media outlets have been spinning the Congressional meetings so that the public understands that Republicans are “holding the Democrats and the President hostage over a debt ceiling limit increase”.  President Obama has been outspoken about the pressure that he has put on Congress that he will only sign a “long term deal” and that if a deal doesn’t get done “social security checks may not go out”.  Fear has been Obama’s strategy for getting things done in Washingtion especially when there is a “tee-time” that can’t be missed.  Obama knows he doesn’t really need a long term deal, but want to appeal to the independent voters who want responsibility in D.C.  He knows that he will have more money to spend as the Bush tax cuts will expire soon.  So the drama continues… 

Shouldn’t all the fear just subside?  There is no reason for the markets to continue with all the panic.  It seems perfectly clear that Congress will wait until the very last hour to get a deal done that includes raising the US debt ceiling limit.  This makes for good ”optics” for the public to see what Congress wants to show them.  The public will see that it took a lot of ”compromise” and a ”sense of working together” by Congress to make the “best” decision for the US economy.  So let the fear go away, let the stock markets rise, let bond yields fall, let the USD fall, let oil rise, and let gold rise.  There is nothing to worry about, Bernanke and the Fed is eager to print more money via QE3 anyway.  Even if it is a bad decision by congress to wait and increase the debt ceiling limit at the last hour, the government will bail us out anyway.  Even China is not worried about a possible US default as one of our biggest debt holders.  China is still more worried about the Eurozone at this point as they keep on buying more Euros.  This is certainly one way to play the outcome for the weeks ahead.   The question is, although this is all so obvious to the markets, why is there so much fear being seen through the recent volatility?  There is something still spooking the markets a bit. 

The reason may be because the markets are trying to decide if a debt ceiling limit increase is really all that good for the economy.  Could it actually make the economy worse in the long run?  Are the markets beginning to wonder if it is time for change and that the US can’t keep “kicking the can down the road” in terms of increasing the debt?  It all comes down to the Republicans as the last hope for realistically dealing with the debt crisis at this point in time.  It seems like the smallest of hopes, but hope does somewhat remain.  The markets are taking this possibility seriously for a change.  Will the Republicans hold onto their conviciton and the conviction of the majority of Americans to “not raise the debt ceiling limit”, or will they compromise with the Democrats to raise the debt celing and create a bigger problem to face down the road?  The political game must end in order for America to return to sustained growth and optimism as one of the greatest economies in the world.  The fact remains that President Obama has not provided a serious plan to resolve the national debt.  His most recent budget includes more spending and an increase to our debt.  For the President to set a deadline for Congress is nothing but hypocrisy that is reciprocated over and over again.  Democrats want more spending and bigger government.  They want to continually increase their power through more dependence so eventually much of Americans’ decisions will be already made in D.C.  They aren’t afraid of increased debt, because more money can be printed.  All of those that have worked hard to get where they are at today, will be forced to return to the lowest common denominator.  Republicans on the other hand could end the debt ceiling increase now.  America is dependent on them to make the right decison even though it is unpopular with the mainstream media, but rather most Americans agree.  Hopefully they won’t sell out to the so called “independent voter” that would see the Republicans as causing us to default on our debt.  In reality the US is already insolvent and must deal with the responsible decision now, so that a better more sustainable economy can be created. 

Republicans have their chance now to withhold from a debt limit increase.  We know the Democrats can not withhold themselves from spending more.  President Obama and the Democrats would love to increase taxes and keep spending.  Regardless what happens, will Americans demand that that Congress acts responsibly or is it just more of the same to come?  The US economy doesn’t need an increase in spending to sustain itself.  It is quite possible that a reduction of spending and keeping the debt limit at current levels might create a positve response for the USD and in Equities as well in time.  For now it’s wait and see before the next big move in the markets.