Monday, August 8, 2011

The latest crash

A debt deal at last, and an S&P downgrade for Treasuries - and a plunging stock market.

There's plenty of blame to go around. To Congress, not just for their dithering and lack of willingness to compromise, but for having a debt limit at all. It's crazy to appropriate all this money (which must by law be spent) and then have a separate debt limit that contradicts the appropriations. To President Obama, for not invoking the 14th amendment as advocated by former president Clinton.

I don't think the market drop is due to the S&P downgrade, which after all only reflects the anxiety bondholders felt watching Congress debate whether to pay them back. It's due to the debt deal, which cuts the deficit. The economy is weak and the conventional economic remedy is to have low interest rates and a large deficit. Cutting the deficit now is reminiscent of 1937 when the Great Depression had a double dip.

But I digress into politics. The investment lesson is to diversify. It's a big world. I have some exposure to Europe, which has its own problems, but I need to have some to the rest of the world, too.