Where is the safest haven now? The past few days have seen another wave of fear in the markets for all the obvious reasons. But whereas in previous bouts of panic there has been a surge of funds into the perceived safe havens of German, US and UK government securities, this time things feel a little different.
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To take the crude marker of safe-haven status, the 10-year sovereign-bond yield, whereas German rates got down to about 1.2 per cent, US to 1.5 per cent and UK to 1.6 per cent, yesterday, the equivalent rates were 1.48 per cent, 1.65 per cent and 1.73 per cent.
You can explain the rise in German bond yields by the growing awareness that Germany will probably have to give some sort of guarantee for other countries' eurozone debt; that will undermine its own creditworthiness. And you can explain the shift in the UK position by the British economy's wobbly performance, which threatens to derail the Coalition's deficit-cutting programme. But the US?
The US has the largest deficit as a percentage of gross domestic product (GDP) of all the major economies, and of course by far the largest in absolute terms. It has been able to finance that because of the prime role of the dollar in international finance and because it has suited the world's saving nations, most notably China, to pile up US government assets, thereby holding down the value of their own currencies.
As a result, the US deficit reached a peak of 12.5 per cent of GDP, as you can see from the main graph
It has begun to make some reduction in the deficit, currently 8.1 per cent of GDP, but the overall debt is still piling up. It is now more than 100 per cent of GDP, having reached $15.7trn (£10.1trn).
President Obama inevitably gets some of the blame for it, for the debt was $10.6trn on President Bush's last day in office, but the reality is that things started to go wrong much earlier. As you can see from the top graph, the fiscal position was actually in surplus in 2000.
For the moment, everything is on hold until the election, but the next president will have to tackle it.
I have been looking at some calculations by Andrew Smithers of Smithers & Co as to how this might be done.
The issue is simple enough: the choice, as he puts it, is "between reducing the deficit too rapidly, not reducing it at all and finding the right balance in which the reduction is credible enough to hold inflationary expectations at bay without precipitating another recession".
Too fast and you get a recession; too slow and you also get a recession; for inflationary expectations will rise, interest rates will rise sharply and that will choke off demand.
But getting the balance right will be difficult. Mr Smithers takes the view that the best outcome would be a deficit-reduction that is credible but delayed until 2014 when the US current account improves. His argument is that the US should wait until the eurozone situation is clearer.
There is, however, a complication. Unless action is taken, fiscal policy tightens sharply at the end of this year.
A number of tax cuts introduced originally by President Bush expire and, in addition, several spending cuts automatically take place. This was the deal he did with Congress: you can have the tax cuts provided they are temporary.
You may think this is a nutty way to run a country's finances and you would be right. But the US has maintained sufficient, international confidence in its economy that it has been able to finance its deficit, notwithstanding the low level of personal savings.
These have recovered a little but remain lower than at any stage for the past 60 years, as shown in the next graph.
That leads to another phenomenon: personal savings are low, but companies are flush with cash. Indeed, profit margins are higher now than at any stage for the past 80 years, as you can see from the final graph.
Part of the correction of the fiscal deficit will probably be associated with a return of profit margins to more normal historical levels.
At any rate, the US will have to do something about fiscal policy next year and the chances of it treading this fine line between too sudden a tightening and too lackadaisical an approach seem a bit thin.
If that is right, how long can the US retain its safe-haven status? Well, we will have to see what happens in the election, and there is no point in adding to the growing pile of speculation about that.
The central point is the mathematics are the same whoever wins, and those maths require a tightening of fiscal policy.
This will also, I think, have to take place against a tightening of monetary policy too, for at some stage during the next couple of years the interest cycle will turn and the world will have to live with higher, long-term yields.
It is just possible we have passed the turning point. It is at least conceivable that long-bond yields for the major economies will never be as low as they were earlier this year.
My own feeling is that as everyone accepts that the present, long-bond yields are exceptional, some rise could be sustained without panic. In other words, it is quite plausible that the safe-haven status of Germany, the US and to a lesser extent the UK, can be more or less sustained for some while.
But I do worry that the US will mismanage its fiscal tightening programme — and the risks of that are not yet fully appreciated either by the US authorities or the rest of us.
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