Debt Of Epic Proportions

Another enthralling week looks set to come to an end with no real conclusion to the US debt squabble. Both sides seem fixed on sticking to their guns, despite the consequences should they fail to agree on terms before the August 2nd deadline. One interesting, yet worrying, fact I thought I would throw in today puts into perspective just how large US national debt actually is: unless lawmakers come to a conclusion, US national debt will topple $15 trillion by Christmas 2011. Now, if you stacked $100 bills as high as two normal sized adults and placed adjacently, you could cover 15 full sized football fields with the amount of money that $15 trillion actually equates to. That’s a lot of money…

Pound Sterling – UK Markets

After a solid few days versus the US Dollar, sterling has started to weaken. Dwindling consumer sentiment, coupled with speculation the Bank of England will maintain interest rates at a record low for the foreseeable future, is placing heavy downward pressure on sterling. This news follows earlier data that revealed the UK economy only expanded by 0.2 percent for the second quarter of the year. Furthermore, another report yesterday revealed the retail-sales index fell to its lowest in 13 months in July.

US Dollar – US Markets

The bickering continues, but the dollar strengthens. It appears at present that when a nation or continent is in trouble, the obvious solution is to ‘chuck’ money at the problem! The ongoing problem is that lawmakers are continuously unable to reach an agreement to raise the debt ceiling, whatever ‘solution’ that would provide. However, later today the latest round of US GDP figures will be revealed, that could quite easily put the dollar on the back foot once again. As with the UK, US growth is near non-existent - if you were hoping for a surprise, you won’t miss much if you choose to make a cup of tea instead. In fact, if reports are to be believed, we can expect a reading somewhere close to 0 percent.

Euro – European Markets

Ratings agency Moody’s continued its rampage by adding Spain to the list of nations on review. Whilst we have questioned other decisions, it is fair to say that this was one of the more obvious moves. Spiralling levels of unemployment, a banking sector that has come under scrutiny in the past, a collapsed housing market and levels of debt that would make Bill Gates overdraft look like a ripple in a pond, all conspire to put Spain firmly in the ‘risk’ category. All these factors are likely to catch up with the nation eventually and a downgrade appears possible in the short term. Investors have become increasingly wary over investing in Spain simply because of the likely effects of a default from Greece. When the recently resuscitated nation finally defaults on its debt, peripheral nations such as Spain will face an uphill battle to stay afloat. Whilst I cannot give you a specific timeframe, watch this space…

Other Currencies – Highlights

Following Australia, the Reserve Bank of New Zealand looks set to announce a rise in interest rates. This has caused the currency to head for its fifth consecutive weekly gain versus the US Dollar. Not to mention its increasing strength across the board. Ongoing debt concerns in Europe and the US have caused issues as far afield as Brazil. The real declined for the a second consecutive day against its major counterparts as debt worries continue and a new tax on investments in foreign exchange derivatives has sapped demand for the currency.