Unlike most of the media the debt ceiling debate I thought the debate went as expected. After watching the budget debates in California, Illinois, New Jersey, and Wisconsin I was expecting the debt ceiling debate to be ugly and to satisfy no one. However the most interesting financial result from the debt ceiling agreement was the movement on the 10 year Treasury bond. So while the media pundits were still talking about rising interest rates for consumers, the 10 year bond continued to go in the opposite direction. That left me to conclude that the big financial issue driving the dollar higher and the treasury bond rates lower was the combination of the Eurozone blowing up and the United States economy stalling. It is got to be hard on the Chinese. Their best export market was tanking and their plan of using a basket of currencies to replace the dollar as the reserve currency was going down along with the Italian and Spanish economies. If the world economy is slowing down, the domestic issues confronting the Chinese are likely to heat up. It is likely that the average Chinese worker will think that they got the raw end of the economic boom.
Another weird economic report was the Federal Reserve report on consumer debt, http://www.federalreserve.gov/releases/g19/. As a fan of Dave Ramsey, http://www.daveramsey.com/home/, I believe that the economic health and wealth of the United States depends on more Americans becoming debt free. It obvious to many people that Americans have too much consumer debt and it is time for the debt pendulum to start swinging back the other direction. Getting our fiscal house in order starts in our own home first. The G19 report by the Federal Reserve was showing that Americans were making some progress in 2009, 2010, and 2011. In 2009 and 2010 the debt went down at rate of ”“4.4% and -1.7% respectively. In 2011 the rate rose at rate that was comparable to our inflation rate, 2.1%. In June our accumulation of debt accelerated to about 7.7 percent from 2.5 percent in May. This drove up the preliminary rate for the second quarter to 4.4% and well above the inflation rate. Both cars and credit card purchases contributed almost equally.
Maybe we will get lucky. The price of crude oil continues to dive as the world economy slows down. It appears that once again we are looking at a mixed bag of inflationary and deflationary indicators. Inflation and deflation continues to be my biggest fears for the United States economy.