Bond Outlook [by bridport & cie, March 15th 2006]
| The retiring editor of The Economist claims that the newspaper usually gets its economic predictions right (except that about cheap oil!), but that bubbles always seem to last longer than can be imagined. So it is with the imbalances of the world economy and the continued growth of the US internal and external deficits. It was only four years ago that everyone wondered where USD 1.5 billion per working day could come from to finance the current account deficit. That figure has now doubled, and there is not the slightest sign of it reversing... It was also a scant four years ago that, as the US current account deficit passed the mark of 4½ % of GDP, commentators would point out that no country has been able to exceed a 5% deficit without incurring a major devaluation of its currency. The deficit is now 7 % and still growing...! |
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| The latest current account data led to a modest weakening of the USD, but it is not as if the EUR, or any other convertible currency, is inherently attractive. |