This week will be have a couple of moment of truth events. No, I don't mean the raising of the U.S. debt limit. I fully expect an increase to occur despite all the political gridlock. I never doubted for a moment that the politicians would raise the debt limit. All the posturing is for show so that politicians can claim they had no choice but to raise the debt limit :-)
The first moment of truth will be for the American voters. Have they learned from the Great Recession? Will they believe that increasing debt continually can't have a good ending? I don't know. However, I suspect they are not ready for the austerity measures needed to change. So they will accept the status quo of forever increasing debt.
The second moment of truth will be for be for the debt rating agencies. Their mistake of giving CDOs a triple A rating was a major factor in the financial crisis. Will the rating agencies reduce the grade of U.S. even if the debt limit is raised? A downgrade would give politicians the motivation to change. However, I expect the triple A rating to remain despite comments otherwise.
This week should be interesting.
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This is not financial advice. Please consult a professional advisor.
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