1. Higher taxes in the USA to address the slower economic activity. The US government has used tax cuts as a means of stimulating the economy. Higher taxes are going to stifle it. Clearly the capacity to raise taxes is limited.
2. Higher interest rates can be expected to rebuild savings in the USA.
You might wonder if the problems in the USA are over. I would say that there was really never a problem that was never going to cause a depression. That was the 'fear campaign'. The only way the economy was going to deflate was if the Fed/US government did not bail out the banks. They knew that they needed to save the major banks to prevent the unwinding of cross-counterparty derivative positions. But clearly the latter considerations place a lid on global growth, particularly in the USA. We might however look forward to a stronger Asian scenario due to pressure on governments in those areas to stimulate domestic demand.
I would advice Australian investors to watch the US market overnight to get a sense of its directions. I'm expecting a pull back, however wait for the lead. The Dow Jones Index failed to break 11,500 points, however further news might achieve that overnight.
The ASX All Ordinaries likewise failed to break its downtrend, however that might come if the USA opens strongly. The market cannot be looking for a further period of stimulus from the USA, it can't come from Japan, but might it come from the Asian tigers?
Andrew Sheldon www.sheldonthinks.com