With the new tax cuts, rating agencies should downgrade U.S. government debt to junk. Economists, pundits and politicians had little choice but to endorse the tax deal between President Obama and Congressional Republicans, because snapping back to pre-Bush tax rates would crush the economic recovery. But Washington exhibited not even the shadow of self-restraint and cut taxes far beyond what is needed or smart.
“…US Treasury data show that China has cut its holdings of Treasury debt by roughly $100 billion (L65 billion) over the past year to $844 billion…
Two epochal forces are colliding in the global bond market: core deflation is gathering force but the West is losing sovereign credibility just as fast.
Arch-bear Albert Edwards at Societe Generale advises clients to prepare for a violent policy swing from one extreme to the other. First we deflate into the abyss: Then we inflate hard rates to get out again. At some point the "euthanasia of the rentier" will wear off. Misjudge the sequence at your peril.”
Ambrose Evans-Pritchard, The Telegraph, London, 8/23/10