Economics rumble in the jungle
from Deep Throat (email for source)


US Debt, public & private

In the contest between global recovery and an opponent that's a hybrid of
unusual structural features and secular financial imbalances, recovery is clearly
ahead on points at and for the moment.

Unusual structural features, including US domination of the recovery, fragile
or vulnerable household sectors in the G3 regions (for different reasons) and
labour market trends in this cycle underscore our and consensus slowdown
expectations. Monetary tightening prospects look out of order as regards the EU
and roughly in line with financial futures as regards the US. How quickly will core
inflation rise this year, if at all?

While the focus on the US external deficit and the falling USD is
commonplace, markets haven't as yet focused enough or in full on the US fiscal
outlook, which is much worse than in the 1980s. They will. And it threatens to
undermine fixed-income markets, joining the stress already in train in the foreign
exchange markets. While a bad bear market will require sustained Fed tightening,
we believe bonds have yet to reflect the maturing of these twin deficits.

posted by prof_booty | 09:31 AM