The national debt is still expected to soar by trillions under the debt compromise plan.
That point is all but overlooked in the debt debate drama.
Now that Congress has voted to approve the debt deal, realize that the proposed "spending cuts" are not true reductions in the budget. They simply slow down the pace of future spending increases.
Specifically, the federal government had planned to incur $10 trillion in additional debt over the next decade. The compromise slows the spending increase to "just" $7 trillion (Politico.com, Aug. 1).
Instead of the current $14.3 trillion debt growing to $24 trillion in ten years, the debt will "only" be some $21 trillion.
So, that's the real debt deal. The government will still borrow trillions in new debt.
What could truly limit America's debt? EWI's Robert Prechter answered that question in Conquer the Crash. Here's an excerpt from the volume's second edition (p. 252):
"Government is rarely prepared for national financial calamities or economic depressions, and when it is, they are unlikely to occur. This is not a result of personal failures so much as an aspect of collective human nature. People are often prepared for the past but rarely for the future.
"Generally speaking, the intelligent way for an individual to approach the vagaries of his or her financial future is to have savings or buy insurance. Governments almost invariably do the opposite. They spend and borrow throughout the good times and find themselves strapped in bad times, when tax receipts fall."
The last sentence of the above quote sounds like now: low tax receipts, bad times, and a financially strapped national purse.
Even so, some expect that the debt deal will produce a "relief rally". Should we expect a new upward surge in the market? Well, the market did surge at first on Monday, August 1. But there's more to Monday's market story:
"Just 10 times since the '80s has the Dow been up 1% in the opening half-hour and given it all, and more, back by 10:30 a.m. — as has happened today, as a triple-digit decline washes away an equal gain ..."
Marketwatch, (8/1)
What does our analysis of the market's Elliott wave structure say about the days and weeks ahead?