Debt problems in US and EURP

In US, the Republicans and Democrats are sparring over the debt ceiling. Here is how I see this getting resolved:

There will be more bonds issued. A large chunk will be bought by China(It is almost completely caught in its own web now). Another substantial chunk by other emerging markets (read: The Arabs) and any unbought will be taken by the Fed, under QEx(X = 1,2, 2.5...., this is a more sophisticated way to say 'Printing Money')


In EURP, Germany, UK and France are battling Ireland, Greece against easing debt servicing terms and using more debt to pay existing debt. Here is how I see this getting resolved:

In the short run, There will be lot of hue and cry on getting stricter terms imposed on Greece, Ireland (and maybe Portugal and Spain). Further, bondholders will possibly do a very small haircut on their holdings - but a technical default will be avoided

In the longer run, There is no way the weaker countries can avoid the debt trap. In fact the stricter norms will force stronger decleration of their GDP and push them deeper in the trap - forcing either a default and/or being pushed out of the Eurozone to save other countries.

The easiest way out is to take the pain pill right now i.e. accept that the deficit is structural and default right now - let the bondholders take the pain. Market does have a very short memory :)
Though don't see that happening with the stance of EU & IMF

Bottomline for Equity Investment: Stay cautious on UK, Europe dependent consumption stocks.