Assume no bond bubble for a moment. Which assumes also that investment grade (IG) bonds are not ridiculously cheap. Which assumes default rates really are/will be diabolical (and Dow Chemical’s travails with Kuwait as they relate to the group's financing of the Rohm & Haas transaction illustrate the problems that can touch relatively sound IG). Which assumes a near ZIRP will not kick in violently but fitfully and slowly, Japanese-style (Ed: did they recover?). Which assumes continued risk aversion to the benefit of US long bonds. Which assumes China does not have an economic death-wish and will not stop buying. Etc etc.

There are some great articles covering bubble vs no bubble. One, two and three for example.

A further consideration, perhaps, is the effect on sentiment that the impact of the recession cum systemic crisis is having on the US tax base. The following graph is through Q2 2008.

Another cut of the same thing:

(St Louis Fed FRED data)

The position is deteriorating badly and likely is set to continue at both ends, tax receipts and expenditure, if the shape of the fiscal debate in Washington and the continuing macro malaise are reference points.

Sovereign default is an unlikely issue: the US economy doubtless can handle the debts it is taking on immense though they may be. But one does still wonder as worse data trickles out if the growing gap between income and expenditure – and draining faith in the direction of policy - might act as the catalyst bubble theorists fear.

*Title a reference, of course, from the well-worn economic joke

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