RHS August 2011 Newsletter

Written by Risley Sams August 03th, 2011  

Debt - Limit Bill Passes House..

Risley's commentary:  The markets have not been happy with Washington as of late. As it looked for clarity on the debt limit issue all it saw was cloudy skies for the past few weeks. Over the weekend, Republican and Democrat leaders cobbled together a compromise bill which should ease tension in the markets. As of this writing the markets are down but there seems to be a sense of relief in the air. While there is a great deal of information out there on the bill, the basics are that there will be no tax increases, the debt limit will be increased incrementally and a Super Committee will be created that will look into further cuts for the future. Even though the bill avoids a technical default on the part of the government, it seems that it does little but continue to kick the can down the road according to Neel Kashkari, a Managing Director at Pimco and one of the original architects of the TARP plan. The two major ratings agencies Moody's & S&P could still downgrade the US's AAA credit rating to AA. The specter of such a downgrade has weighed on markets despite the positive news on the House passing the bill. Furthermore, European debt woes are plaguing the market as Italy cancelled its bond auction today. If the ratings agencies were to downgrade the US, the cost for the United States to borrow money would increase. This would likely slow the recovery further and put a damper the economy's expansion. Al Hunt, Bloomberg's Washington analyst thinks that this bill "does nothing to help the economy grow, it merely helps the government continue to borrow." Brian Westbury Chief Economist of First Trust Advisors says that "the bill does not get the U.S. back to fiscal sanity overnight." What we do know is it is a compromise and likely better than none at all.

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