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  • Upcoming Debt Ceiling Fight Could Get Really Ugly

    Today we will focus initially on the upcoming battle over whether to increase the US debt ceiling. The government reached the current statutory debt limit of $18.1 trillion back in March. Since then, the Treasury has been paying the nation's bills by using so-called "extraordinary measures." But the Treasury warned recently that such funding will be exhausted by November 5, and that means another debt ceiling battle will play out between now and then.

    While we've seen this movie before and know how it will ultimately end, the political battle in the coming weeks could get really ugly, especially now that House Speaker John Boehner has announced that he is stepping down soon. With a lack of leadership in the House, this year's debt limit circus could be especially unsettling for the stock and bond markets.

    Next, we turn to the question of whether a recession is likely just ahead. While the economy grew by a better than expected 3.9% in the 2Q, more and more forecasters are downgrading their outlook for the second half of this year. The number expecting a recession in the months ahead rose sharply in a survey by Bloomberg at the beginning of this month. The good news is that about 85% of economists surveyed do not expect a recession to begin this year.

    As usual these days, there's a lot to think about - so let's get started.

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  • Consumer Confidence Plunging – Recession Ahead?

    The stalemate in Washington continues, the government remains in partial shutdown and the debt ceiling looms on Thursday. A bipartisan deal to fund the government until January 15 and raise the debt limit until early February is working its way through the Senate and could be voted on later today or tomorrow. It is unlikely that the Senate bill would pass in the House, which is reportedly working on yet another bill (see link below) that is unlikely to pass in the Senate.

    The mindless gridlock continues and the Treasury Department warns that it will run out of “extraordinary measures” by the end of this week and the statutory debt ceiling will be eclipsed on Thursday or Friday. While this will technically be a “default,” the Treasury will continue to collect enough revenue each day to pay the interest on all of our outstanding debt. Still, things are likely to get increasingly crazy in the next few days.

    As a result of all the hype and anguish over the shutdown and the debt ceiling, consumer confidence has plunged since the beginning of this month. The confidence index, as measured by Gallup, has declined by the most since September 2008 when Lehman Brothers went bankrupt at the height of the financial crisis. And it continues to fall. This raises fears that consumer spending will drop significantly and a recession could unfold just ahead.

    Following that discussion, we’ll look at some interesting facts surrounding our national debt which now stands at a mind-boggling $16.965 trillion. Since our national debt is Issue #1 on the minds of most Americans, the discussion below should be very timely.

    Finally, today’s E-Letter will print longer than usual because we have lots of charts and graphs.

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  • September: A Rough Month for the Markets?

    September is often a bad month for the stock markets, historically speaking, and this year it could be especially turbulent. In addition to all the uncertainty about the weak US economy, there is uncertainty about what the Fed may do just ahead and what, if anything, will be done to address Europe’s recession and debt crisis. In addition, there is the looming presidential election which no doubt will go hyperbolic this month.

    We begin today by looking at the situation in Europe, now that the August vacations are over. It remains to be seen if European leaders can make good on their promises earlier this summer – I doubt it. From there we look at the latest US economic reports, which were a mixed bag. Next, we consider Fed Chairman Bernanke's speech last Friday and the probability of QE3 when the Fed next meets on September 12-13.

    We end today with some of my thoughts on the Republican National Convention last week, which I thought was very good. It remains to be seen how the Democrat Convention will go. I find it very odd that Hillary Clinton will not be there at all. And finally, I once again recommend that all of you go see "2016: Obama's America" movie. It's not what you think it will be.

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  • Fed Offers Bailout of European Banks

    Last Thursday we learned that the US Federal Reserve has decided to make unlimited US dollar loans (swaps) to the European Central Bank (ECB) and directly to European money center banks that are in trouble, at least through the end of this year. And what will the Fed get in return as collateral? Eurodollars that are quickly falling in value as of late. So even as our own economy may be falling back into recession, the Fed sees fit to bail out the European banks that are sinking in sovereign debt from the likes of Greece, Ireland and Portugal.

    All eyes are on tomorrow's Fed Open Market Committee policy statement. The Fed is expected to announce its so-called "Operation Twist" strategy that is intended to lower medium and long-term interest rates, which may or may not work. Some people expect the Fed to comment on its latest decision to make unlimited US dollar loans to European banks, but I will be very surprised if they mention a word about it. They're keeping it very quiet (which is another good reason to read my E-Letters and blog postings).

    Speaking of blog postings, I will write about tomorrow's Fed policy decision on my blog before the end of the day tomorrow. Go to www.GaryDHalbert.com and subscribe to read my take on the Fed's announcement.

    Following the Fed discussion, I will bring you the highlights of the latest report on US poverty from the Census Bureau. Poverty is now at an all-time high. Ditto for the number of Americans that depend on food stamps, according to the Department of Agriculture. These two reports are very troubling.

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  • On the Speech, the Economy & Runaway Debt

    This week, I will touch on several topics.  We begin with a few thoughts about President Obama's State of the Union address last week that you might have missed.  Most notably that he was roundly criticized by the Washington Post, one of the more left-wing papers in the country.  Following that discussion, I will analyze a new report which discusses why Obama's $800+ billion stimulus program did not work as expected.  Next, we will look at the Congressional Budget Office's latest forecast for the fiscal 2011 budget deficit.  Think $1.5 trillion!  And finally we will look at the new makeup of the Fed Open Market Committee, which changed at the first of this year, and what that might mean for monetary policy going forward.  Hopefully, all of this will make for an interesting letter this week.

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