Next Worry: US Debt/Deficit?

The falling dollar is concentrating the attention towards the budget deficit and US debt. The S&P downgrade was just the first shot, there will be many more to come. Rising commodity prices is grabbing the attention of the public to the downside of a weaker dollar and building populist anger towards QE2 and the endless stimulus, both fiscal and monetary. Instead of just a high unemployment, there is also the added kicker of growing inflation, which has been admitted by everybody but the US government. What does this mean for the market? Well, stocks like the falling dollar but at some point, you will get a divergence like 2008 when the dollar kept falling but so did the stock market. The rise in oil prices was a big factor.

Usually when you get a pullback in stocks, the dollar strengthens but with all that supply of dollars adding up from the QEs, the supply demand fundamentals keep getting worse. The market will keep focusing on that US debt and deficit until something is done about it in Washington.