bond market vigilantes
The bond market vigilantes, the group that according to legend forced Washington in the 1990s to turn its attention to reducing the deficit and whose return has been predicted ever since the red ink came back with a vengeance during the George W. Bush administration, will likely make it's long-anticipated re-appearance in the next few weeks as Wall Street and the budget world turn their attention to the soon-to-be-needed increase in the federal debt ceiling.
Except that the bond market vigilantes are likely to be saying some thing completely different from what deficit hawks have been expecting. Instead of doing what they did before by demanding deficit reductions, today's bond market vigilantes are far more likely to be insisting that the federal debt ceiling be raised whether or not the spending cuts and revenue increases some are saying is the precondition for their vote ever materialize.
In other words, screw the deficit.
My column from this morning's Roll Call asks two very troubling questions:
1. Why are some people refusing to hear what the bond market is saying?
2. How is it possible that so many of those who insist the bond market should be ignored now were saying just the opposite before?
Having It Both Ways on the Bond Market’s Message
Sept. 7, 2010
My Aug. 3 column about the former “bond market vigilantes” now being obvious federal budget deficit cheerleaders generated a great deal of attention and lots of pro and con comments.
My column from this morning's Roll Call is about Wall Street's clearly changing opinion about the federal deficit and national debt. I wonder why CNBC hasn't discussed this yet.
Bond Vigilantes Are Now Deficit Cheerleaders
Aug. 3, 2010
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.
Here's my column from today's Roll Call.
Let He Who Is Without National Debt Sin Cast the First Stone
A small part of me is glad that bond market vigilantes are focused on the federal budget, the deficit and the national debt. Not caring about the amount that the government is borrowing would make bond traders far too much like the mortgage market that was willing to look the other way as no-doc, ninja (no income, no job or assets) and payment-option adjustable rate mortgage loans helped lead to the economic problems that we’re suffering through today.
But most of the bond market’s concerns are remarkably misplaced or misstated, and they are clearly being hyped for political purposes. Those in Washington, D.C., who are using these concerns to attract attention are not just incorrect but almost laughably wrong. They are also at least partly to blame for what they are now so willing to blame on others.
