The bulls point to resurgent growth in the emerging markets of Asia and Latin America, and reckon the developed world will soon be following, albeit it at a slower pace. The bears focus instead on burgeoning fiscal deficits, still shrinking private credit availability and a basic lack of demand in once buoyant deficit nations. For them, the big menace is "out of control" public debt.
Yet for the moment there is no doubt which view is triumphing. Since the nadir of the crisis in March, the price of virtually all assets has risen strongly. I say virtually all, but of course one of the biggest asset classes of the lot – government bonds – has not. Bond prices are quite a bit lower than they were last March. And therein lies a large part of the bear case.
If all governments have done in fighting the crisis is replace private debt with public debt, then they have not addressed the underlying problem. The most that can be said is that they have smoothed and stretched out the adjustment, but they have not removed it.
What's more, governments must soon start the process of rebuilding their finances, which in turn is going to act as a brake on demand for possibly years to come. In the meantime, fiscal deficits throughout the developed world are rising to levels which even the most sanguine of observers find truly scary.
