Bond Outlook [by bridport & cie, November 25th 2009]
| Many parts of the world economy, especially in the West, are in a mess. The reassuring words from the Fed and various politicians to the effect that a sustainable (albeit slow) recovery is underway, and that the USD’s decline is orderly, are pure propaganda. How can a recovery be sustainable when it is so dependent on printing money, a rate of deficit spending seen normally only in times of war, and the provision of almost free money to banks (a source of enormous popular resentment)? If the USD’s decline is orderly, it has little to do with Washington and much to do with Beijing. |
| Financial markets are behaving as if they are “buying” the propaganda. Either that, or their behaviour is perfectly logical, given that borrowing money is so cheap (for banks and others who can access it), and there is so little return from cash. Maybe market behaviour reflects a bit of both: blind hope and a desperate search for any form of positive return. |
| Governments and central banks all speak about the need to end their extraordinary measures, recognising that these lead to ever growing budget deficits which will eventually have to be reduced. |