bond market
Don't believe the hype.
It's certainly possible that at some point the Chinese could stop buying U.S. debt and, therefore, drive up interest rates. But every time I ask the question of true experts in the field (as opposed to inside-the-Beltway types who are interested in scoring political points), I get an answer that makes far more sense and is based on facts rather than fear-mongering.
Chuck Lieberman, who as I've said before is one of the economists whose words I always consider carefully, has an easy-to-read take on this issue that is worth a few minutes of your time.
If you don't have time to read the whole thing, here's the money quote:
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.
Here's my column from today's Roll Call.
The Bond Market Vigilantes Need To Chill Out
Stan makes an excellent point this morning. The bond market is very aware of the rapid deterioration of deficit forecasts and is poised to raise interest rates with or without the Fed as reported by Matt Benjamin of Bloomberg today. Unless the economy worsens considerably, higher interest rates are likely by inauguration day. I fear that the next president and Congress may ignore the markets and enact expensive new tax and spending programs anyway. We've been through this fight before in the 1980s.
Back then, Wall Street economist, Ed Yardeni, coined the term "bond vigilantes" back when Ronald Reagan ran the highest peacetime deficits in history. Yardeni's prediction of higher interest rates made him very well known among investors. On May 29th, Ed issued a similar prediction.
Bond traders rejoice; you're about to have a lot of product to sell.
The Treasury said last week that the government would reach its borrowing limit by October 1.
