Bond Outlook [by bridport & cie, June 17th 2009]
| Suppose a person with a serious lung disease catches flu, and undergoes intensive treatment for only the latter ailment; does overcoming it mean their underlying problem has been solved? The same question begs itself of the US and related economies with regard to the much-trumpeted resolution of the banking and financial market crisis. Is the crisis the cause or merely the symptom? Our sick person’s flu may come as a result of his lung problem, but it is not the root cause. Whether the financial crisis has really been resolved is questionable so long as banks are not adopting normal lending practices. However, of greater import, is whether the underlying problem is being addressed and on the way to a solution. |
| We define that problem as “spending beyond one’s means” (mainly by the USA) with all that implies for global imbalances, household indebtedness, and its ultimate manifestation of a burst housing bubble leading to the present crisis. |
| Unfortunately, the underlying problem has not been solved. Households are still deleveraging, but still have a long way to go. |