Tuesday, May 31, 2011

U.S. Debt Woes, Though In Background, Still Lurking

That's why Michael Power, Investec investment strategist, believes gold will continue going up. The more immediate if underacknowledged influence is macroeconomic data from Asian countries. With respect to mainland China, the current tightening may reverse if it takes too big a bite out of economic growth.
"We are beginning to see them really become very big players and the more people focus on what's happening in the west to the detriment of not really focusing on what's happening in the east, the less they're likely to get the overall picture right."

That said, there is reason to be concerned not just about what is going on in Europe but, also the developing situation in the US.

According to Power, the biggest question in the global economy at the moment, albeit not the most immediate one is what is likely to happen to U.S. debt.

He says, "Someone this morning likened it to a Charlie Chaplinesque cartoon where you see a guy tied to a railway track and the engine is coming from afar and you can hear it coming and they're lying on the track looking at you and saying help me get out of this. I don't think that the Americans have quite realised yet that the debt train is coming and its big and at some point they're going to need something to do about it."
Needless to say, he's skeptical about the chances of any budget discipline coming down the pipe. He's of the opinion that U.S. legislators are still in denial.

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