America has reached a deal on their debt – so what?

So this weekend in the USA, Republicans and the Democrats finally came to an agreement on reducing their debt & avoiding default.  The question really begs, what does this mean for us and the world?  As a South African I tend to be a bit one-sided when it comes to the way I view things.  Nothing can affect us here in the south, we are impervious and independent to what is going on out there, especially that washed up western power.  That is, however, a very narrow and “head in the sand” approach that has gotten many other African states into a world of pain.

Why am I saying this?  Well it is because the world needs a strong USA.  We need their society to buy our cheap goods and consume our coal, gold and perishable produce.  A weak and defaulting US economy is no good for us.  This has been proven over the last few years.  India, China and other emerging economies still provided growth but traditional western economies (US, Europe) have struggled.  This has made world markets skittish and volatile.  Sure we have had some gains locally – see the 3 year return on the Satrix Divi & the 1 year return on offshore funds.  Now compare this to the 3 year return of the same offshore funds – still not quite recovered the losses from 2008.

The truth is this; the world needs a strong US economy.  This way we can produce more for them to consume.  This is evident in the way that the markets had begun to rebound on the news that they are considering the deal – people like good news. There is a small fact that it still has to be voted on in the House and the Senate. World markets were up in the morning but seem to have lost confidence in the deal during the day.  Uncertainty over whether it will be accepted or take longer than expected is weighing on investor confidence.

There is a load of detail and arguing that needs to be sorted out and this does present the uncertainty permeating the markets.  A positive is the fact that a deal has been struck, an agreement that something must be done to sort out the deficit and Americas chronic overspending. 
That is good for the global economy.

The migration of the world’s attention to the rising Eastern powers of India and China is a good thing as the US will stutter for a while still.  The risk of a default still looms large in the PIGS^# (specifically Greece) and also in the possible downgrading of the US debt.  Markets can be scary and not for the faint hearted, be brave, get some good advice, and take a stand as there is money to be made.

Everything will be ok.

# - PIGS – Portugal, Italy, Greece and Spain