Bloomberg Writes: A U.S. Default Seen as Catastrophe 

 

Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.

Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse.

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The media is in overdrive talking up fiscal disaster or catastrophe associated with the “FIRST EVER DEFAULT” over the next few days,  the American people are freaking out, the stock market doesn’t care, the largest bond fund (Bill Gross) is buying bonds while claiming no default…..hysteria and confusion everywhere.

So, what is going on here? What will happen?

To gain clarity all you need to do is step away from all this mess for a second and keep a close eye on only one indicator. The stock market.

Let me put it this way,  if there is a real default, it would indeed be catastrophic. So much so, that I wouldn’t be surprised to see the stock market drop 20-50% within a very short period of time. A crash so to speak. Yet, crashes do not happen when everyone is expecting them (as in this case).

As such and for now, the stock market is predicting that the US Government Fiscal Crisis will be over shortly. In fact, technically speaking the market is setup for a very strong rally here.

Will it be associated with the end of the crisis? I believe so. Take a look at the stock market, everything else is simply noise. I would anticipate the issue to be resolved at any minute now with the stock market surging higher from this point on because of that.  

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