Bond Outlook July 14 2010

From great fear to all smiles in just a week is how market sentiment in the USA has swung. There is still however turbulence below the surface, partly because of the two totally opposing ideas about the route to US economic recovery:

• “demand-siders”, who advocate more stimulus
• “deficit-cutters”, who would cut the debt to GDP ratio back to levels of 15 years ago

The former have appropriated the name “the Washington Consensus”, implying their ascendency over the latter, who have to content themselves with the sobriquet “the Austrian School”.