“Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it. And not fixing it is, in a sense, making it worse.”

-       Alan Auerbach, economist at the University of California in Berkeley.

It’s the bond market, stupid. Equity markets may or may not have turned a corner from their recent lows (the signs are improving even if the global economy is not), but government bond markets increasingly look like a grisly road accident in progress. Which is as it should be. 10 year Gilt yields have risen by a third, from 3% to 4%. 10 year US Treasury yields have doubled, from just over 2% to 4% since December. Not even President Obama can oversee a $1.2 trillion annual deficit during years (2009-2012) that were previously forecast to be showing a surplus (of more than $800 billion a year) without Treasury bond investors getting spooked. And it’s bad luck when you’re dependent on the likes of China (foreign exchange reserves: c. $2 trillion) and Russia (over $400 billion) to fund your grotesque efforts to support Wall Street bonuses and the housing market. It’s almost as if George W Bush departed from Washington determined to make the Oval Office uninhabitable for his successor. Having said that, Gordon Brown seems to be going through a similar ‘scorched earth’ policy for the UK’s public finances – and we don’t even have a Wall Street.

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