Massive rout spells trouble for Wall Street

On the recent debt-ceiling debate, I held two positions.

1. There would not be a default, because it was in no one's interest.
2. The big problem isn't the debt-ceiling, it's the debt.

So, the debt-ceiling was raised, and what happens next?

Massive rout spells trouble for Wall Street

Investors seemed to find little to cheer after the U.S. Senate agreed to a deal to raise the debt ceiling because of the possibility it will not stave off a downgrade of the U.S. government's triple-A rating.

"Investors have made the shift from Washington to what I'm calling economic realities," said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.

Composite volume on the NYSE, the Amex and the Nasdaq reached 9.5 billion shares, well above this year's daily average of around 7.5 billion.

The Dow Jones industrial average .DJI dropped 265.87 points, or 2.19 percent, to 11,866.62. The Standard & Poor's 500 Index .SPX dropped 32.89 points, or 2.56 percent, to 1,254.05. The Nasdaq Composite Index .IXIC dropped 75.37 points, or 2.75 percent, to 2,669.24.

Shortly after the vote, Fitch Ratings said the agreement to raise the U.S. borrowing capacity means the risk of a sovereign default is "extremely low" and commensurate with a AAA rating. But it warned Washington must reduce its debt or face a downgrade.

If the threat of a downgrade was because of the fear of default, as we were told repeatedly by the President (and, frankly, everyone else in Washington) then the threat of a downgrade should now have passed. But it hasn't. And why not? Because the problem is not the debt-ceiling - it's the debt.