Bond Outlook [by bridport & cie, February 7th 2007]
| Over the last weeks, optimism about the US economy has reigned, not least in this Weekly comment. Lower oil prices (compared with last year, and notwithstanding the recent rally) have allowed consumer spending to continue unabated in the USA. The beginning of a shift in relative return back to labour from capital has raised hope that households will feel little or no squeeze as the housing market slows. A fortnight ago we observed that the question about the US economy's landing being soft or hard was misplaced; there was going to be no landing at all! |
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| Yet there has to be a landing sometime. The unsustainable -- in this case a country and the households in it living beyond their means -- has eventually to be brought to account. To continue the aircraft metaphor: the plane was gently approaching the runway when the pilot pulled back the joystick, opened wide the throttle and flew off again. Now the co-pilot, in the person of Ben Bernanke, has to wrestle with the pilot to circle round again and really land, before the fuel runs out, and preferably softly. |