Exponential growth of last 25 years has reversed

ON BONDS

The bond markets in the developed world have entered a new phase. Until recently, the eurozone debt crisis was limited to the ‘peripheral' members.

Markets now fear that the problem is more pervasive in nature. Arguably, what has really hurt markets recently is the growing realisation that growth is likely to be much weaker than previously thought over the medium term. Given that the exponential credit growth of the last 25 years has gone into reverse, economic upswings are unlikely to be as prolonged as in the last three cycles when they lasted anything up to ten years. Recession now looks likely in Europe. Simply put, given that the main problem is one of excessive debt levels, falling growth rates makes the necessary fiscal and b...