Bond Outlook July 21 2010

In this Weekly we often like to observe that we are witnessing history in the making: the shift in economic power from West to East, the rise of the EUR as an alternative reserve currency, the impossibility of the USA continuing to spend more than it earns, and the development of emerging markets. These things are happening. We also expect, someday, the emergence of a third reserve currency based on Asia’s economic strength. We must add that, despite the respite now being enjoyed, we cannot see the Euro Zone continuing to function without more centralised control.

This week we attract readers’ attention to the great experiment now taking place, the results of which will indeed be historic: whether the path to renewed and sustainable growth lies via austerity or continued government deficit spending. Readers know well our views on this and that they were developed in favour of belt tightening long before the crisis even began. Nevertheless, the debate continues, including in the pages of the FT this week, where proponents of both views have been given free rein.