Bond Vigilantes Are Now Deficit Cheerleaders

[Kurt_and_Hunter]

Bond Vigilantes Are Now Deficit Cheerleaders
Stan Collender


The story is that the bond market forced President Bill Clinton to change his budget plans. Bob Rubin, director of the newly created National Economic Council, supposedly convinced Clinton that those who buy and sell Treasury securities on Wall Street would force interest rates much higher and hurt the economy if he didn’t do something about the deficit and federal borrowing.

The anonymous traders were dubbed “bond market vigilantes” (a phrase coined by economist Ed Yardeni a decade or so earlier) because they were more than willing to use the weapon at their disposal — higher interest rates — to force fiscal policy in their preferred direction.

It’s clear that the bond market is now giving at least as strong a signal about its desired fiscal policy as it did in the early 1990s. But instead of demanding reductions in the deficit and government borrowing and threatening higher interest rates if those don’t happen, today’s vigilantes are unmistakably saying just the opposite. They want Washington to do more to stimulate the economy, and they welcome the deficit and debt it will take to do it. In other words, the former bond market vigilantes have now become the biggest supporters of federal deficits and borrowing. I’ll follow in Yardeni’s footsteps and call them bond market deficit cheerleaders.

It’s almost impossible not to notice how unambiguously the bond market deficit cheerleaders are making their policy preferences known. In spite of the repeated prognostications made by multiple commentators that interest rates will (rather than could) rise in response to the large deficits because of bond market disgust, traders have voted with their dollars. The auctions of Treasury securities that were needed to finance borrowing have almost all demonstrated a strong demand for federal debt over the past year, no matter what the maturity. As a result, interest rates have remained low or fallen. This is especially the case with long-term rates, which would be the ones most affected by concerns about budget-related federal borrowing and inflation. The bond market deficit cheerleaders have shown little indication they’re concerned.

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[Odin2005]

1. Chomsky calls these fuckers a "virtual senate" accountable to no one.

They hold societies hostage to their whims. the notion of a Capital Strike is NOT some conspiracy theory.

[Kurt_and_Hunter]

2. .

[grantcart]

3. Oh my, its a wonder that our system functions at all really.