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Banking

Bond Outlook by bridport & cie, May 18 2011

Prevarication is the order of the day: postpone the day of reckoning for the Federal debt ceiling to August 2nd and delay proper resolution of Greek’s problems by extending maturities.

Bond Outlook

Earlier this week, the US Federal debt ceiling was breached. All hell should have broken loose, with civil servants out on furlough, entitlement payments stopped and government services curtailed. Yet so far, nothing much seems to have happened, and it has been easy to miss such a significant event, given the scant attention paid to it in the press. Part of the reason may be the diversion provided by Strauss-Kahn, and part in ‘creative’ moves instigated by Geithner to keep the Government operating, including raiding the pension funds of federal employees. August 2nd has now emerged as the new deadline for raising the debt ceiling.

 

Whilst the Republicans and Democrats in Congress agree on the scale of deficit reduction needed, they are in gridlock over whether the solution should include tax increases. The refusal by the majority Republicans to lift the debt ceiling is an attempt to impose their view that the Bush tax cuts should not be reversed, and that no other tax increases be introduced. A new idea has now been thrown into the debate by Republican Presidential candidate Ron Paul, who suggests selling gold and other Federal properties.

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