1. Why take any view of market events when market events themselves have no particular inherent meaning?
2. It is almost unavoidable to look at the price graphs of the major indices around the world or hear about the Greek crisis, the Euro crisis and US debt crisis and not wonder about the narrative which support these events. There is something inside us that wants to fit these events into a coherent, consistent and manageable story line. The simpler the story, the easier it is for us to manage the unknown. If the events don't fit our world view, we will automatically re-interpret the events so that they do conform to our world view.
3. Ramsey's law (the early 20th century mathematician who drew out Wittgenstein from a kindergarten and died tragically young) tells us that there is no such thing as pure randomness to a sentient creature because as the creature senses more and more randomness, more and more recognisable patterns appear. Ironically, as one approaches absolute randomness, we find an infinitude of patterns. In some sense, this is a fine definition of insanity and the epistemological limit of any given reality. The more we can read into a matter, the more random it actually is!
4. Now let us enter the US debt ceiling crisis. Obama, for all his smooth talk, has simply capitulated to the Wall Street investment bankers. This is the image of the President on a dog's leash held by his Wall Street handlers. This is amazingly confirmed by the outgoing chairwoman of the FDIC, Sheila Baird, at: http://www.nytimes.com/2011/07/10/magazine/sheila-bairs-exit-interview.html?pagewanted=all. Given Obama's trajectory in despoiling the nation, entering 6 theatres of war, and pretending to bargain for a $4trillion national debt reduction and pretending even further to have some kind of budget reduction plan which no one has even seen, it behooves us to speculate that his intent to further his masters' interests. Of course, this interpretive innuendo begins with the premise that a US default is good for the Wall Street elite. How? Simple. Crash the system so that all the government assets and concessions can be privatised and passed to the elite. This is the kind of thesis held by supersmart people like Professor Michael Hudson, see: http://michael-hudson.com/2011/07/the-euthanasia-of-industry/, and supersmart people usually believe the world is composed of people like themselves. For an extreme example of this conspiracist attitude woven into immortal philosophical dialog and literature, see Ivan's story of Christianity post Constantine to his brother Aloysha inThe Grand Inquisitor, at: http://www.online-literature.com/dostoevsky/2884/.
5. But just maybe events are not connected unless we consciously make them so. The greatest logician since Aristotle, Kurt Godel use to say that the future is ironically determined by our knowledge, such that we can choose to have an apparently open future if we remain determinedly ignorant. But once we know the future, it cannot be changed. Given Godel's principle, and Ramsey's law, how might we predict the future?
6. If we want an open future, we need to let go the desire for certainty. But the pain of uncertainty may be too much.
7. How might a failure to reach agreement on the US Debt ceiling by July 22nd play out?
(1) Everyone will go into denial. The fact is that it takes 9 days for a Congressional bill or resolution to make its way to the President's office. If by July 22nd no compromise has been signed, sealed and delivered to the President then we have an end game to technical default.
(2) Markets gets quiet before announcement of compromise and skyrockets afterwards. This will be mainly because of short-covering.
(3) Despite Compromise which is probably weak and temporary, the rating agencies put the US obligations on credit watch with possible downgrade.
(4) Despite Compromise, Bond vigilantes sell the dollar and US treasuries. But this is a mistake because unless there is a desire for Hairi-Kiri the big sovereign funds are likely to back the dollar. Saudi has its unquestioned support especially since Israel is preparing to bomb Iran, sworn enemy of Saudi.
(5) If technical default persists after July 23, then it's likely that the govt approved algos will support the low volume markets.
(6) If for some mad reason no compromise is reached by August 2nd, then equity markets globally will crash to their circuit breaking levels.
(7) On August 3rd, many people will wonder whether they will be paid.
8. In sum, expect all "safe" asset classes to go lunar from now until the supposed compromise. Gold to $1650. Swiss to undertake capital controls. Greece to default. And if the US goes into a technical default with no debt ceiling adjustment by August 2nd, immediately 7000 municipal bonds will be downgraded, 42 million people will get their food stamps one more time, and then, there will bank runs and since the US debt can no longer be trusted, a mass exodus will occur in the high frequency trading driven equity markets with singularities reached in 10 seconds, circuit breakers will continuously go off, and then a major clearing bank will declare itself insolvent, and then, we'll see the Orderly Liquidation Authority of the Dodd-Frank Act come into full swing. Let's not go there.
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