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2011/05/19: The Risk from US (and Others’) Fiscal Impasse May Perversely be Greater for Equities Instead of Government Bonds

May 19, 2011 Leave a comment

There was an excellent recent Financial Times broad perspective by their credit market supremo Gillian Tett on US Tarp program history and real world implications. In addition to a very concise, well-informed view on that, the column was ultimately attempting to illustrate the title claim that “Tarp shows that US can break political deadlock” (insight column, May 13, 2011) through a bit of history and series of well-thought points. Not the least of which is the fact that it usually takes a crisis for US politicians to take obvious necessary steps.

As Winston Churchill once observed, “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” In the current circumstances that now applies to not throwing out the baby with the bathwater while addressing daunting fiscal challenges. As both sides of the political divide rapidly shift between accommodation and antagonism, we are not hopeful about a reasonable resolution.

Regardless of how the specific negotiations unfold, the obvious risk would seemingly be to the US government bond market (possibly along with other sovereigns.) Yet, on recent form any problems with the US fiscal reform negotiations have hit equities even more so than govvies.

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