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Troubles with Debt

August 19, 2011 – 5:10 pm

Today, Friday, there is a dearth of economic and political stories, at least so far this morning. That is welcome relief for the stock market and those who watch it tic by tic. A calming process would be very comforting and it appeared that at the beginning of the week we were going to get calm. That went out the window yesterday. Volatility is here to stay.

The volatility will not go away until and/or unless something permanent is done about European banks. We have gone from worries about sovereign debt in Europe to European bank debt. One of the reasons is that the banks own sovereign debt and they did not produce the liquidity our banks did after the financial crisis so they could absorb any shocks or attacks on their balance sheets. The EU could step up and back them up and ultimately that is going to happen but the politics are messy and that is adding to the stress instead of reducing it.

We have a similar mess here in the U.S. concerning our sovereign debt. In our case our banks are very healthy with little danger to their balance sheets, but our debt ceiling wrangling pushed things down the road to the ‘super committee’ that will meet next month. This means we will be dealing with this issue all over again. The difference between Europe and the U.S. is that we are in a much better place, just not in a good place financially.

Good Trading
Steve Peasley

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