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Does The Specter Of Having Your Debt Lumped In With Greece Spur Budget Cutting?

If, and this is a big if, the chance of a debt downgrade spurs fiscal responsibility the longer term direction of equity indexes will be decided on how they go about the deficit cuts. Higher taxes, or some actual spending cuts. If the majority of the deficit reductions take the form of higher taxes the market will be in for tough sledding. My guess is that they do nothing  until forced by the bond market which is still benefiting  from the perception that we are less sick than other more notorious debtors and that China needs to manage its exchange rate.

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