Light at the end of the tunnel but is it a train coming

The President just announced a tentative agreement between the House and Senate on raising the debt limit ceiling.  Tentative because both houses of Congress still need to vote to approve the terms of the agreement, but you would assume that the leaders wouldn’t announce the agreement if they didn’t think they had the votes to pass the legislation.  There are two parts to the agreement, first part cuts roughly 1 trillion dollars from the deficit over the next ten years while setting up a 6 person committee to come up with further cuts to satisfy the rating agencies desire to downgrade the US debt instruments from AAA to AA.  This downgrade may be inevitable as Standard and Poors said they need to see 4 trillion in cuts over the next decade or they would probably downgrade the US debt.  The downgrade is the oncoming train I referenced above because if our debt is downgraded, interest rates across the board go up from credit cards to mortgages and most importantly the interest rates on our $14.3 trillion debt that China, Japan, India, etc own and continue to buy.  I don’t believe a default was ever possible but the President and some politicians continually used the “D” word,  but if we are downgraded then it begs the questions of whether China, Japan et al will continue to show up at our Treasury auctions to buy our debt.  If they do not show up or reduce their purchases, our ability to service the debt and finance our government becomes very difficult as we are currently borrowing about $0.44 of every dollar the government spends.  Not surprisingly the futures markets leaped higher on the news as the Asian markets also moved higher and US dollar and bond markets are marginally higher.  The US dollar and bond markets are only marginally higher as they had hoped for more progress on reducing the long term debt issue, always keep an eye on the bond market as it is usually more right than the stock market.  Over the last week the Dow Jones industrial average lost a little less than 600 points and is now set to gain 170 points on Monday’s opening, if the agreement passes, expect more gains, if not then look for the Dow to give up everything it is gaining right now.