>Why are financial markets not worried about the US fiscal deficit?

The financial markets are not penalising the United States, whose public finances are in a very poor state, while they are penalising many European countries. Can this asymmetry in the way they are treated be explained?

− Are the financial markets confident about the capacity of the United States to quickly regain vigorous growth capable of reducing the fiscal deficits? This is unlikely, due to deleveraging and accelerated deindustrialisation. Moreover, the low level of asset prices is eliminating the tax revenues generated by capital gains.

− Are the financial markets confident about the US administration’s commitment to reducing the fiscal deficits? But the Obama administration’s plans do not suggest this is the case, and the drastic reductions in fiscal deficits in the past in the United States (under Clinton) were due to exceptional circumstances (military spending cuts, taxation of capital gains, etc.).

− Are the financial markets confident that it will remain easy to finance the US fiscal deficits? Admittedly, the household savings rate is rising, central banks in emerging and oil-exporting countries are investing massively in dollars and the dollar plays a safe-haven role when risk aversion increases. This explanation is probably the right one, but it cannot be valid in the medium term. We therefore believe that there is an anomaly in the way US public debt is valued in the financial markets.

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