It's the economy stupid!

The American and European debt debacle are obscuring an important issue. American Q2 GDP is well below expectations, as the Q1 that's revised to half-percent. Consumer confidence, payrolls and factory indexes are all below the expected. The "soft patch" in the economy risks to be more an W or even L-shaped recovery.

Moreover, budget-cuts or higher taxation or both are inevitable for conserving american financial credibility. Cutting government spending is in very very strange contradiction with the keynsean monetary and fiscal policies maintained by american government since the financial crisis in 2007-08. Financial restrictions that will be certainly soon implemented risk to push the fragile recovering global economy in new, deep and very painful recession.

In addition, the recent debt concerns are depressing the markets to a level where technical damage become clearly visible on the S&P 500:

The one-year term support of the up-trend was broken in May and now the 6-8 month stable, horizontal trend is negotiated under Bollinger's band. Yesterday the MACD emitted a clearly bearish signal, as the other technical indicators(momentum, bulls power etc).

The down-trend that we are actually observing will reinforce the psychological impact of financial strains in the debts markets in case of american credit downgrade. And the combination of those factors- credit strains, new restrictive fiscal and spending policies in THAT timeframe risks to be very depressing for the economy.