Buttonwood's notebook

JUST caught up (via Zerohedge) with a Der Spiegel interview with Carmen Reinhart. It all fits in with your blogger's world view especially the point where she says that

You have to deal with the debt overhang one way or the other because the high debt levels are an impediment to growth, they paralyze the financial system and the credit process.

Inflate, stagnate or default has been the mantra here, since the debt survey published in 2010. Ms Reinhart mentions outright default but also - a term she helped coin - the prospect of financial repression, holding real interest rates negative as a way of transferring money from creditors to borrowers.

ALBERT Edwards has been plugging his ice age thesis since the late 1990s, that economies are doomed to slide into a deflationary squeeze and that equities are doomed to de-rate relative to bonds. Mind you, he does think we are nearing the end-game. In his latest note (he's at Societe Generale now, having been at Dresdner Kleinwort in the past) he writes that

with core inflation of only 1% we are only one short recession away from outright deflation. Hence we see US 10 year yields converging to Japanese-style sub-1% levels.

WHAT a crazy world. Apple, a company with $145 billion of cash, is issuing some $17 billion of debt to buy back its own shares. Why doesn't it just use its cash to do the same thing? First, because a lot of that cash is overseas, and bringing it back to America would incur a tax charge. Second, because interest rates are low and debt interest is tax-deductible, making this look a great arbitrage.

But think of it from the point of view of the hard-working American taxpayer. Apple's money will still sit overseas and not be invested at home to create jobs. Apple's tax bill will fall, as it offsets the interest payments against its profits.

THE Economist organised a conference on Europe yesterday under the Bellwether title and your blogger had the honour of chairing it. There was a very high-powered list of speakers - Jorg Asmussen of the ECB, David Lipton of the IMF, Andrew Haldane of the Bank of England, Sushil Wadhwani (ex-Goldman and monetary policy committee member), Thomas Mayer of Deutsche Bank and so on.

As one might expect, when one gathers lots of economists together, there was lots of intelligent debate, but no agreed conclusion.

BOND yields are falling. This is great for Italy and Spain where the cost of borrowing is its lowest since late 2010.  But it's a bit less encouraging that German 10-year yields are down 16 basis points over the last month or that US Treasury bond yields are down 24 bp. That hardly suggests investors think that the economy is returning to normal.

It would hardly be surprising if investors had a feeling of deja vu, as the global economy flatters to deceive. World trade volume is only up around 2% over the past year.

IF IT seems odd that gold and Treasury bond yields are both falling when US equities have recently been reaching new highs, Dhaval Joshi of BCA Research points to another disconnect - that between US and European equities. Since the end of Janaury, the Eurostoxx had dropped 5.5% while the S&P 500 had risen by 4% (at the time his research note was published). Lest you think that is all down to the euro zone's problems, emerging markets have also been weak this year.

Is it all down to the relative strength of the US economy? Surely not.

JAMES Surowiecki is a well-respected writer and I normally enjoy his New Yorker columns. But his latest effort "Shut up, savers!" is very odd. It is understandable that he might get irritated about right-wing complaints about economic policy (Rick Perry's treason comment. Jack Welch's conspiracy to hide unemployment etc); often these remarks are paranoid or silly.

But in an entire page devoted to how savers benefit in other ways from monetary policy (a stronger economy, many of them are also borrowers etc), he devotes not one word to pensions. Pensions are the single most important savings pot. And pension plans have been hit by low rates, since pensions are a bond-like liability.