The dance continues in Congress. Will the debt deal get done? Or will the United States be plunged into economic darkness?
Recall, I originally shared my views on the debt situation in a column I wrote back on July 11, 2011. In it, I said…“If they [Congress] don’t resolve this crisis by August 2, then the United States will technically default on its debt. If that were to happen, the market would likely not open on August 3. If you’re worried about this – sell now! But it won’t happen.”
Since that time, bond yields are unmoved by the inaction in Washington. And credit default swaps haven’t budged, either, which points to an agreement.
Still, there is a possibility that a deal may not get done on time, but that’s only so the holdouts can send a message to President Obama and the country.
Of course, whether the deal happens now or later matters very little in the grand scheme of things. The problems facing America aren’t going to be solved overnight… or in a couple of years.
You see, confidence in U.S. growth is near an all-time low.
But I’m not making this assertion based on conventional benchmarks that measure confidence, like consumer data or housing starts.
Nor would I ever base anything off of Washington’s rhetoric.
Rather, I’m gauging confidence in the United States as measured by three critical indicators – gold, bonds and the once-mighty greenback.
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Indeed, we should all be paying close attention to what’s happening with gold, bonds and the dollar because when they turn, it sends a very strong signal that the United States is back on track.
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Sure, the stock market sits near two-year highs, and corporate earnings are setting records. But the real story is told through the movements in the three assets above.
For example, take corporate earnings. They’re higher in U.S. dollar terms, for sure. However, when you compare earnings in terms of gold or foreign currencies, the picture isn’t nearly as pretty.
One dollar earned by IBM today will buy half the gold that it would have bought five years ago.
Likewise, the S&P 500’s gains are great expressed in U.S. dollars, but when priced in euros, yuan, or Canadian dollars, we get a more accurate representation of America’s woes.
The United States is falling behind the rest of the world in terms of living standards, which should trouble you immensely.
Interest rates are at zero. Worse yet, when measured by short-term rates on Treasuries, rates are actually negative.
That’s scary stuff!
Interest rates must rise to indicate a strong underlying future growth. Regrettably, they’re falling – an indication that there’s really nothing but economic malaise on the immediate horizon.
(I’m not suggesting that a double-dip recession is imminent. I agree with Louis Basenese, who recently rebuffed the idea of a double-dip.)
Bottom line, these three indicators – gold, the U.S. dollar and bond yields – are the real indicators of the country’s health and future prospects. And for now, all are pointing in the wrong direction.
Ahead of the tape,