Bond Outlook July 14 2010
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Bond Outlook July 14 2010

The dichotomy between the USA and Europe is widening. A sense of optimism has returned to the USA as “Washington consensus” dominates “Austrian School”, although we suspect it misplaced.

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:


  • “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”. 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.

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