The Trifecta: Economic, Fiscal, and Political Deficits
The global economy has been in recovery mode since mid-2009. But it has not felt like a normal recovery. By now the transition from recovery to self-sustained expansion should have occurred. Instead, the risks of a renewed downturn (i.e., a recession) remain elevated and financial market volatility is high. Global stock prices were down 12 percent (in U.S. dollar terms) in 2011 through to mid-November, while long-term governments bonds for the G7 countries have returned +10 percent. This gap between equity and bond markets reflects significant investor concern over the economic and profit outlook and higher odds of a global deflationary shock.
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