If the doomsayers are to be believed, the US economy is on the brink of disaster. Unable to agree a fiscal consolidation package in mid-2011, Democrat and Republican parties set a formula where an automatic set of deep spending cuts and tax exemption expiries would kick in from the start of 2013. This is the so-called fiscal cliff. The idea was that policy-makers were applying pressure on themselves to come up with a less catastrophic way of reining in the budget deficit.
In the year of presidential and congressional elections, that idea has not so far worked out. Not that the debt markets appear too concerned. On the contrary, with investment-grade yields tightening so much that pension funds struggle to earn the 5% or so they need to pay out annuities, US investors have been willing to move down the credit curve and buy into less familiar names from Europe and elsewhere just to find a better rate of return.
