Bond Outlook October 12th

For months, even years, the only critics of the politico-economic policies of the Bush Misadministration have been voices crying in the wilderness (bridport, Merk, Roach, for example). Now, however, even Republicans are realising the folly of unrestricted Government spending, the trigger being the casual way Bush announced that heavy Federal funding (between USD 60 and 200 billion) would be thrown at the hurricane-hit areas without tax increases. Thus criticism and doubt are now becoming generalised. Of course, there are still hard-core Bush defenders, who have written several books recently aiming at "liberals" in most unparliamentary language. A sign of panic before loss of power?

Actually a degree of responsibility may be hitting US lawmakers on the issue of personal (and corporate) bankruptcy. The ease of personal bankruptcy in the USA has introduced a moral hazard on household indebtedness. The new law will significantly reduce that hazard and consequently put at least a marginal brake on excessive borrowing. Yet of much greater importance will be the rise of interest rates (including long-term) and the end of the housing bubble.