Bond Outlook [by bridport & cie, July 14th 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: |
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| 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”. Readers will hardly be surprised that we align ourselves with the Austrian School, and find interesting support for this view in Jamil Baz’s article in the FT. He points out that the total debt to GDP ratio was, and should be, in the order of 200%. It is now 350%, having scarcely changed since the crisis broke. A reasonable target might be to reduce it at a rate of 10% per annum, implying about 15 years of little or no growth. |