Interest rates on US, German and UK government bonds have fallen to all-time lows. Yields on 10-year US Treasury securities are the lowest since the Federal Reserve began publishing market data in 1953. Only the anticipation of negligible demand for capital and negligible inflation – both hallmarks of recession – could drive rates this low.
The debilitating sovereign debt crisis in Europe is pushing it and America back towards the brink. It is causing credit conditions to tighten again for sovereign credits, weaker borrowers and small and mid-sized business. The crisis was avoidable but Europe’s leaders chose to delay, take the tiniest steps possible and generally avert their eyes to the elephants in the room. America’s leaders have also spent too much time on partisan bickering. It must stop. One last round of fiscal stimulus should be enacted immediately.
Another recession would be profoundly damaging to labour markets and public confidence. It would take years to fully overcome. We must try to avoid such an outcome at all costs. That requires the type of far-sighted leadership that we haven’t seen much of lately. Continue reading »