In mid-November the U.S. Treasury will run out of borrowing authority and thus run out of cash unless Congress increases the deficit or raises taxes. There is the risk that members of the House of Representatives will not allow a debt extension bill unless their demands are met and for which the president would not agree to accept these demands. This could result in a repeat of the July 31, 2011 crisis where the government almost defaulted on its debt, or it could lead to default. The main paradigm in bonds is that the worse the economy gets the more that people seek to buy sovereign debt from the giant “print and pay” nations thus causing rates to
Govenor Scott Walker of Wisconsin survived a recall election tonight which was about his attempts to reign in excessive government spending. This implies that voters will seek to turn back the policies of excess government spending which could ultimately lead to lower taxes and greater economic efficiency. However, in the short run, since this would be accomplished with wage cuts and layoffs, this would be deflationary, so bond prices could go up and stocks could go down.