THE DANGER OF JAPAN AND THE EU TO THE GLOBAL ECONOMY
The growth rate of nominal GDP in the US has fallen to 2.4%, the lowest level outside recession since the Second World War.
It has been sliding relentlessly for almost two years, a warning signal that underlying deflationary forces may be tightening their grip on the US economy.
Given this extraordinary backdrop, the violent spike in US and global bonds yields since last week is extremely odd. It is rare for AAA-rated safe-haven debt to fall out of favor at the same time as stock markets, and few explanations on offer make sense.
We can all agree that oxygen is thinning as we enter the final phase of the economic cycle after 86 months of expansion. The MSCI world index of global equities has risen to a forward price-to-earnings ratio of 17, significantly higher than on the cusp of the Lehman crisis.
Nonetheless, the Fed cannot plausibly be responsible for the global bond rout. What is true is that markets fear the Bank of Japan and the European Central Bank are reaching their political limits, and may not be allowed to press ahead with their experiments even if they want to.












