The most impassionate song, to a lonely soul
Does the recovery we’ve seen in fits and starts have any legs at all, outside of the major emerging markets? Or is it a mirage?
I don’t think it’s possible to infer from the stock market rally anything resembling a sustained recovery. The third quarter GDP number of 3.5% growth was at least half due to one-off government measures. In any case, the U.S. consumer is constrained by horrible balance sheet problems – excessive leverage and severely reduced real estate values on the assets side. The stock market rally has been largely due to near-zero interest rates and a weaker dollar. In foreign currency terms there’s been no rally. (…)
At some point it is absolutely inevitable that the U.S. will have to ‘default’ on part of its existing liabilities, since the long-run trajectory of government borrowing is clearly unsustainable. With the unfunded liabilities of the Social Security and Medicare systems now around $100-trillion, these look like the most vulnerable budget headings.
{ Niall Ferguson interview | The Globe and Mail | Continue reading }
photo { Brian Ulrich }
