Bond Outlook January 4th
Inherent sustainability or a recovery so dependent on debt that a major adjustment is overdue. How vulnerable everything is because the economy never followed a post-bubble cure five years ago.
Bond Outlook [by bridport & cie, January 4th 2006]
The New Year has begun with views as divided as ever over whether US GDP expansion is real and sustainable, or merely a spending spree dependent on Chinese and Japanese vendor financing, together with mortgage equity withdrawal. We, of course, side with the latter view, taking seriously the seeds of long-term problems being sewn by the lack of US investment in productive assets and debt-based spending at all levels. Many who share our view thought the "game would be up" in 2005. Yet it went on and the USD strengthened. Pity: not that we take schadenfreude or any other sort of pleasure in the anticipation of a US slowdown (every country will suffer from it), but we are acutely aware that the longer the inevitable rebalancing is delayed, the more painful it will be.
The grand master behind the postponement of reckoning is Alan Greenspan, currently riding high in popular opinion, but whose historical legacy will be very different. He was the central banker who denied the country its natural cure after the bursting of the dot.com