Dow Sinks Over 300 points as Debt Talks Fail

Markets are falling from the latest congressional failure

The Dow Jones Industrial Index has fallen over 300 points, on the news that the congressional super committee for deficit reduction has all but admitted failure to agree on a solution.

The fall was also aided by the dismal news from Europe, where a growing number of countries with dire debt profiles are facing crises and increasing costs of borrowing.

Spain’s new government is facing bond yields that are closing in on Italy’s already-high yields, at 6.53%.  Both countries are unlikely to be able to sustain borrowing at rates over 7%.

The Hungarian government, who’s bonds are just above junk status, has invited the IMF to come in to help, even as Italy is struggling frantically to reform labor laws and raise the retirement age.

The reality is that Europe lived the easy life off credit for decades and now the bill is come due.  Over-generous social services, plus deficit spending to pay for it are the major culprits.  The world, apparently, is no longer willing to give them a free ride.

Here in the United States, the free ride continues, although the U.S. problem is masked by being a safe haven where money flees to in times of crises.

As we have said repeatedly though, the U.S. bill will soon come due.

For now though, the knee-jerk reaction of the markets will likely calm down in the next few days, given that no one expected the congressional committee to succeed anyway.

That is, of course, if Europe does not melt down in a terrible mess. Stay tuned.

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