A U.S. government default on its obligations would be unprecedented, triggering unpredictable consequences in financial markets and the global economy. The U.S. government could exhaust its ability to meet all its financial obligations as early as Feb. 15.

VIX

Last week, the Chicago Board Options Exchange's volatility index (VIX) dropped 39% its biggest one-week retreat ever after lawmakers and the White House reached a hard-fought deal to avert the billions of dollars in tax increases and spending cuts that had been set to hit the economy on Jan. 1. The long-term average for the VIX is roughly 21.5.

Earning Season

Tuesday Jan 8, Corporate Earnings Season Starts. Alcoa, typically the first company in the Dow to report earnings, is scheduled to announce results after the close of trading. Alcoa kicked off earnings season with...Alcoa swings to profit, forecasts 7% growth in global demand.

Becareful with Consumer Credit

The problem of Consumer Credit was that Student Loans and Auto Loans Fueled November Consumer Credit Increase. So, if this was driven even remotely by actual short-term consumption demand, it would likely be a good sign, as it would imply consumers have more faith in being able to repay their credit cards.

Unfortunately of the entire $16 billion jump, only $817 million, or 5%, was based on a jump in revolving credit. Total outstanding revolving credit increased to $858.4 billion from $857.6 billion in October, or a SAAR of 1.1%. Total outstanding nonrevolving credit increased to $1.9101 trillion from $1.8949 trillion in October, or a SAAR of 9.6%.

GDP

The real "growth" came from US Government handouts, solely in the form of auto and student loans, which accounted for a whopping $15.2 billion of the increase in consumer debt, the second largest jump in the year, second only to the $18 billion in January.

For all of 2012, a whopping $130 billion of the $137 billion total credit has been in the form of government handouts. In other words, nearly 1% of 2012 GDP has been funded by Uncle Sam.

Balance Sheet

The Fed's portfolio has tripled since the financial crisis of 2008 and 2009, as the central bank bought government bonds and mortgage-backed securities in an effort to keep interest rates low and to stimulate the economy.

What do the Economic Reports reveal about the state of the economy?

1. 30-year fixed-rate mortgage (FRM) averaged 3.40%.
   
   
2. Overall import prices fell 0.1% that points to a tame inflation environment.
   
   
3. Weekly applications for U.S. unemployment benefits ticked up slightly last week.
   
   
4. Mortgage applications increased 11.7% from one week earlier.
   
   
5. Consumer credit rose in November for the fourth straight month.
   
   
6. Wholesale Inventories Jump 0.6%.
   
   
7. U.S. December budget deficit $260 million.
   
   
8. US Trade Deficit Surges; Import Prices Fall.
   

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