Wednesday 21 February 2018

Brendan Keenan: Bond markets have become a haven for risk takers

The bailout has bought us some time but there is still a lot of other things that could yet go wrong

ONE of the apt remarks attributed to the British Prime Minister Harold MacMillan is that there is no time so distant as the day before yesterday. It feels only that long since Bill Clinton was president of the US, but what a distant era it now seems.

For part of the Clinton years, the US federal government ran a surplus -- tax revenues exceeded spending. Such is the way with trends that many learned folk at the time saw no reason why there should not be a permanent US budget surplus, and now it is an impossible dream.

More relevant to our present predicament is one curious effect from the prospect of US surpluses. Economists worried that the financial system might grind to a halt. If the US was not borrowing, it would not have to issue any fresh bonds -- the "IOUs" which governments give to people who lend them money, whether through the debt market or the post office, promising a fixed rate of interest and repayment on a certain date.

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