From Gluskin Sheff's David Rosenberg
Fiscal Contraction Is Coming.... This Is A Key Theme
What exactly are the reasons to be bearish on the bond market? Oh yes, fiscal deficits!
Well, if you haven’t yet heard, major budgetary restraint is coming our way in the second half of the year, and so we would recommend that you enjoy whatever fiscal and monetary juice there is left in the blender. There isn’t much that is for sure. The weekend newspapers were filled with reports of how the conservative wing of the Republican party have banded together to ensure that spending cuts will be in the offing — see In House, Republicans Close to Approving Record Cuts on page A13 of the Saturday NYT. The state and local governments are already putting their restraint into gear — see Wisconsin Leads Way as Workers Fight State Cuts on the front page of said NYT; and Wisconsin Democrats Keep On the Move on page A3 of the weekend WSJ. First it was Christie’s New Jersey that was a role model in terms of embarking on true fiscal structural reforms. The baton was then passed to Mitch Daniels in Indiana. Now it is Scott Walker in Wisconsin who is the new poster boy for fiscal reforms and necessary restructuring.
What is happening at the lower government level definitely has a grassroots Mike Harris ring to it, and for those that do not know who Mike Harris is go ahead and google him and the ‘Common Sense Revolution’ that gripped Ontario in the 1990s. Yes, it can be done. And shared sacrifice by the civil servant community, not widespread defaults at the state and municipal level, is going to be the solution — either accept higher contribution rates to your pension, higher payments for your health care, and wage cuts — or lose your job. Sounds like the deals that ultimately got struck across the lean and mean private sector in recent times from the auto sector to the airlines (wasn’t GM at one point nothing more than a health insurance provider?). To think that the President can stick his nose into local government budgetary affairs and accuse Wisconsin of an “assault” on unions (then again, didn’t he once accuse a police officer of being a racist?) at a time when he plans to actually EXPAND the federal government deficit this year to $1.7 trillion is truly remarkable.