Bond Outlook October 26th

Virtually all comment on outgoing Fed Chairman Greenspan and incoming Bernanke is so adulatory that no further praise is necessary. In fact, we stand against the current, as we do not go along with seeing Greenspan as beyond criticism. The reason is simple: building economic growth on the basis of huge indebtedness at household, government and national level is an abuse of reserve currency status and an act of great irresponsibility vis à vis the future. When Bernanke reassures that he will continue Greenspan's policies, we wince. The best we can say about Greenspan is that he has been remarkably clever at delaying the inevitable and of convincing people that the inevitable will not happen.

The inevitable in question is, of course, that debts must eventually be repaid. All the Fed members know this, but they maintain a conspiracy of silence, with just the tiniest hint that they are aware that the housing bubble must be deflated. Where we see a silver lining in the dark cloud is that both the current and the future Chairmen may be skilled enough to let the bubble down gently.