Securities analysts' expectations for long-term earnings growth, an assumed proxy for investors' expectations, were revised up significantly over the second half of the 1990s and into 2000.1 Over that same period, risk spreads on corporate bonds rose markedly on net, implying a rising probability of default. Default, of course, is generally associated with negative earnings.
We’re sending the same messages to governments, that they have to be prepared for higher long-term financing costs eventually. They have to plan their fiscal policy accordingly. Are they actually preparing? I trust them to do so.