Bond Outlook [by bridport & cie, April 8th 2009]
| Macro-economic issues fashioned our position that this recession is "L-shaped", i.e. that it will go through several percentage points of GDP decline, ending (with a little good fortune) towards the end of 2009, followed by years of little growth or decline. Earlier hopes, partly shared by us, that "decoupling" would allow the world to survive an adjustment in US over-spending, have been totally dashed. In a way, however, the ghost of the decoupling dream lives on. When the long base of the "L" finally comes to an end, and growth resumes, it will not be because the USA has bounced back, but because surplus countries have partly replaced the lost consumption of the USA. Our fundamental argument to the effect the USA cannot return to the previous GDP level is that households can no longer borrow and spend, but will save and build reserves. |
| Now, in addition to macro-economic considerations, a parallel argument, focusing on socio-political considerations, has been developed by the American novelist and public radio host, Kurt Andersen. His five page essay published in Time Magazine is well worth reading. |