This interview was forwarded to me:
1. For almost two decades we’ve been told that when you’re looking for signs of what Wall Street wants Washington to do about the federal budget, the bond market is the place to watch. What’s the bond market saying today?
The bond market is being as unequivocal today as it was when Bob Rubin used what it was saying in 1993 to convince Bill Clinton that he had to push to reduce the deficit. The only difference is that, instead of demanding deficit reduction, the bond market today is exhibiting no worries about the deficit or federal borrowing at all In fact it’s indicating that Washington should do more to stimulate the economy.
Although there are also a number of technical reasons why the demand for federal debt is strong and interest rates have remained low, the bond market’s interest in Treasury securities has been high no matter what the maturity. This demonstrates that, contrary to what deficit hawks and demagogues have been insisting, there is little or no concern on Wall Street about the government’s borrowing, either short- or long-term.
2. Why are Congress and the White House ignoring the bond market now after feeling the need to follow it so closely before?
In 1993, the bond market was threatening higher interest rates if the deficit wasn’t reduced, something elected officials could ignore at their own political peril. By contrast, the only threat the bond market can make now is to lower interest rates further, and that isn’t as fearsome to politicians.
In addition, the bond market in 1993 had a former bond trader — Bob Rubin — as a high-level advisor to the president and, therefore, in a position to communicate and validate what it was saying to Washington.
Most important, however, what the bond market is saying today is different from what deficit hawks and GOP critics of the Obama White House want to hear. As a result, the echo chamber that amplified and repeated the bond market’s message almost two decades ago doesn’t exist today.
Read the whole thing and tell me how accurate you think this is…
Tax Analyst
I think he’s pretty much nailed it.
Especially this:
Stuck in the Funhouse
Whew, the bond market says not to worry. What a relief.
Omnes Omnibus
@Stuck in the Funhouse: Can the bond market also help me pick out a tie to wear with this suit? ‘Cause that would be great.
FormerSwingVoter
This is pretty accurate, except that the bond market isn’t the only consideration. This isn’t telling us that we don’t need to worry about deficits – it’s telling us that we don’t need to worry about deficits yet.
jeffreyw
Krugman has been saying the same thing for so long that the fire in his hair has burned down to smoldering roots. The serious people in Washington seem to be giddily toasting marshmallows over it for their “gotta cut $ocial $security $’mores”.
Chris
Completely accurate.
On the negative side, there is the potential to re-ignite serious inflation. But the Bond Ghouls will keep watch for this. So far, there is no sign at all, and my estimate (which is no better than anyone else’s) is that we have at least two “free” years ahead.
Sentient Puddle
Spot on. Though it makes me wonder about Rubin…why the hell is he calling for deficit reduction now? Not that I’d expect his reasoning to make any sense.
PeakVT
Very good, though it doesn’t talk enough about how blatantly hypocritical “fiscal conservatives” and “deficit hawks” are.
ETA – @Sentient Puddle: Bankers benefit from low inflation or outright deflation. Rubin is talking his book.
Comrade Javamanphil
A Shorter Play, in One Act
GOP: Market forces fix everything!
The Market: The government needs to borrow.
GOP: Screw teh Market!
Chris
Incidentally, the indirectly-linked blog http://www.capitalgainsandgames.com/ appears to be a very good one.
Dave
Basically, deflation is a much larger concern than inflation at this point. So to focus on deficit reduction through spending cuts as opposed to pumping more money into the economy to get things going again is, as the Bard so eloquently put it, fucking stupid.
Allison W.
This is why the vast majority of cable news panels need to be filled with actual experts, independent experts not lobbyists and politicians up for re-election. This is why Op-Eds packed with lies shouldn’t be printed. This is why anchors/hosts need to push back and stop allowing pols to dodge questions.
I know the Dems have poor messaging and I know the GOP are convincing liars, but the media should be on our side telling us the absolute truth and they have failed the American people more than either party combined.
The Bearded Blogger
@Dave: I took a course in wingnut economics. All government spending is bad, all tax cuts are good. Deficits are sometimes good and sometimes bad, depending on whether the president is a republican. Deflation is just a liberal code word for Gay Islamism
cleek
i’m in Tax Analyst‘s ignorant group, but i can say that whatever they’re doing now isn’t working. and i’m not so ignorant to know that when your current approach isn’t improving a bad situation that it’s time to change your approach.
apparently, that makes me smarter than the geniuses in DC.
BTD
@Sentient Puddle:
He’s not.
Brachiator
I agree that the aggregate decisions of investors and institutions in the bond markets indicate that they are not worrying about the deficit. That this also indicates some consensus that Washington should do more to stimulate the economy is wishful thinking.
It’s almost comical how the interview subject talks about the bond market as though it were a real person, with goals and ideas. Makes you wonder why there isn’t an interview out there that starts with “We sat down with the Bond Market and talked about the issues of the day, especially its opinion about Lindsey Lohan’s jail sentence.”
You also have to take the dig at the public’s ignorance with a grain of salt. A lot of this smart money represents the assholes who ground the economy to a halt.
Edward G. Talbot
at the very least, I think it’s accurate to say that the market forces that traditionally speak to the deficit (the bond market) are saying we need more stimulus.
I happen to agree with that, but not because the bond market is saying it. The joke is that all the “market forces” based idiots are not going by what the market is saying.
cat48
@BTD:
Did you see him on Fareed Sunday? I thought that he said no more stimulus and concentrate on a long term deficit plan.
lawnorder
Thing is, borrow from whom ? Our Chinese overlords are having troubles of their own and losing patience with US.
IMF sez we are broke (in the last report). No lender would take us if we weren’t “the US of A”. But past glory only counts for so much…
You Don't Say
I agree with it, with the small caveat that I never see anyone say bonds are attracting investment because they’re the safest bet in an otherwise field of very unsafe bets. Maybe that distinction doesn’t matter.
And I think the last point — that the public is ignorant on economic issues — is important. Which is why I’m really itching for some kind of public uprising about these issues. I’d love to march on Washington, but that’s probably too ambitious.
chris
@jeffreyw:
w00T—Your internets will be delivered via UPS ground. Expect them within 10 days–two weeks tops!
jeffreyw
@chris:
Why, thank you, chris.
Chris
@lawnorder: As I understand it the Chinese are not buying Treasuries now. But someone sure is. If there is no one out there to “borrow from”, who exactly is buying up every T-bond and T-bill that comes out for sale, such that the rates are below 3% on the 10-year and only 4% on the 30?
Chris
@You Don’t Say:
I say it all the time. Indeed, it doesn’t matter, as I always point out: if the US Treasury were to default on bonds, how do you think the rest of your assets would fare?
Steve LaBonne
That piece is superb.
Now I have a question for the reflexive Obama supporters. Why isn’t HE making these points every single chance he gets, instead of constantly reinforcing wingnut framing on the deficit and entitlements?
I can buy that he can’t get sane policies through Congress. What I can’t buy is that he makes no attempt to educate voters about the policies that we REALLY need and about exactly who is preventing them from being enacted- quite the contrary in fact. Either he doesn’t know that our current policy direction is suicidal or he doesn’t care. Which is it?
Chris
@Brachiator:
It is equally comical that people talk quite seriously about how “the market” (usually the US stock market or the subsets implied by the big three averages) has this or that opinion. Which I try to counter by repeatedly reminding them that Mr Market is bipolar, and probably a schizophrenic to boot. :-)
You Don't Say
@Chris: On another blog I read (sports-related nonetheless) some guy is talking about US going down in flames due to “dollar bubble.” I Googled (my understanding of anything economic is precarious) and I only got bunch of old hits. Any thoughts on “dollar bubble”?
BTD
@cat48:
The key is “long term.” Krugman is for long term deficit reduction too.
The problem with Rubin is he is not for further stimulus. But that is different than saying he is for short term deficit reduction,. He isn’t.
BombIranForChrist
I am so, so, so the opposite of an expert in this stuff, but all the people I respect tell me that in the long term, we have to address deficit reduction, but in the short term, it’s not a concern.
Where even people I respect seem to disagree is whether or not we need more stimulus. No one wants austerity measures, but there is disagreement on if we should inject more stimulus, how we should do it, where should it go, etc.
This stuff makes my head spin. I can see how this technically complicated subject is a perfect petri dish for demagoguery.
Michael E Sullivan
@2:
The bond market is hardly saying not to worry. It’s saying we should be really worried about a bunch of other things. It’s saying that we should be much more worried about deflation and idle resources than about inflation or deficits.
When the bond market is worried about the government’s ability to pay back it’s bonds or an expected decline in the dollar, people sell those bonds, and invest in different kinds of assets (other countries, real assets). Right now, the exact opposite is happening. People are selling real assets and buying US government bonds. So whatever people think of the US government’s ability to pay on those bonds, they believe that *other* investment opportunities are not as good.
If the overall economy was in strong recovery, it would be realistic to worry about the deficit, because money would be coming out of the T-Bill market and into other kinds of investment. Until then, it’s utterly foolish to worry about the short term deficit, or inflation.
James E. Powell
The politics and economics of the deficit and government spending generally differ because of the more than thirty years of propaganda from the corporate ruling class.
The term government spending means free money for minorities, illegal immigrants and their anchor babies, and other groups of people that we don’t know, but we don’t like.
On the other hand, the money for invading and occupying countries is not government spending. It’s something else, and if you even ask about it, you are a pro-terrorist traitor.
Massive subsidies to corporations and industries like agriculture, oil & mining, etc., are also not government spending.
Ailuridae
@lawnorder:
FFS, this is annoying as all get out. The Chinese hold around 7% of all US federal debt. Additionally they have decreased their holdings in real dollars over the last year(and that looks to be the plan going forward) and since the deficit is increasing their percentage share of debt held is decreasing pretty rapidly. This is the kind of stupid, paranoid Red Scare fucking nonsense that belongs on right-winger blogs, not here.
Please stop being a stupid fucking knob about US Debt
Stuck in the Funhouse
@Ailuridae:
China just happens to be number one on that list, and with the possible exception of anglo English speaking countries, none of the others could be called our friend, as I state first on the original thread way back when. And labeling it due to “Red Scare” is just hyperbolic bullshit, and a scare tactic of it’s own.
And shove that shit about belonging to right wing blogs. That kind of crap doesn’t belong here, if anything doesn’t.
Ailuridae
@Stuck in the Funhouse:
Even if you change your handle it doesn’t change the fact that you don’t know what the fuck you are writing about. China isn’t now “buying all of our debt” and announced they were slowing purchases in Dec 2009. And them slowing purchases is a good thing that hasn’t adversely affected the US ability to borrow at all as the US can borrow at record low rates even with the Chinese selling their bonds recently.
And, Japan, isn’t an ally of the US? Really?
You were wrong about this the first time you posted it. You don’t become less wrong or ignorant subsequent times by virtue of volume. Keep playing the contrary game if you want; it doesn’t change that you have the underlying objective facts completely fucking wrong.
ksmiami
@Steve LaBonne:
Actually, his lack of fiscal communication has been pretty stupid and disappointing. He needs to be FDR – where did the Obama candidate go?
D-Chance.
In the mean time, on HGTV’s House Hunters, watch as John and Mary choose between the $750,000 lake house (great view, but not water front, how will they dock their yacht?), the $650,000 cottage in the suburbs (classy, but the master bath only has one vanity sink, and they really wanted an island kitchen), or the $975,000 abode on the golf course (the walk-in closet to the 5th bedroom is kind of small, and the swimming pool isn’t indoor?).
Stuck in the Funhouse
@Ailuridae:
Okay, if I or lawnorder claimed that China is now “buying all our debt” then you need to give links, if not, then you are a lying sumbitch. I don’t think I said that, but if I did, then i was wrong. Otherwise, I and lawnorder are not “wrong” to not swallow yours and others shit whole that borrowing large amounts of money is without risk, and we shouldn’t be concerned cause self appointed geniuses like you say so. Now fuck off and go preen your prissy self.
Stuck in the Funhouse
@Ailuridae: Japan may be an ally, but that doesn’t mean they are our friends. Long and complicated history.
Ailuridae
@Stuck in the Funhouse:
What is the clear, obvious implication of the following from the following quote:
Thing is, borrow from whom ? Our Chinese overlords are having troubles of their own and losing patience with US.
Those sentences pretty clearly amount implying that China was financing our borrowing. But that has never been true. The notion amongst the right tards and apparently now the finance challenged left is that China buying US debt at open auction means that someday they can make a margin call or something and if the US fails China gets Hawaii. That’s simpy not how public debt works even if it “makes sense’to yo uthat it does.
Now fuck off and go preen your prissy self.
Get your facts straight or be corrected. In the meantime how about you stop commenting on shit you plainly don’t fucking understand and then getting all huffy when, again, you are shown to have absolutely no idea what the fuck you are talking about. Jeebus, don’t you ever get tired of not knowing and think your time might be better spent learning rather than making an ass of yourself?
lawnorder
@Ailuridae:
Only one person making an ass of itself here… You.
Stuck in the Funhouse
@Ailuridae:
I figured you would say this. And it is a clear indication of someone who takes a lot of liberty in logic to jump to the conclusion. “China is now “buying all our debt” in quotes.
And further, taking mine and lawnorder’s simple concern about big borrowing, and feeding it into the above is just breathtaking in it’s arrogance and audacity. You have straw in your head son, and it was likely there during the HCR when I believed your writings. That was my mistake, and it won’t happen again.
I have always been something of a deficit hawk, whether it was dems or repubs in office, and am now all for borrowing as needed to keep the states above water and the safety net funded fully. It is you and others that is full of it, attempting to shove rose petals up our asses that such needed borrowing will automatically make us fat and happy and living well ever after. You have charts, and figures, and your favorite liberal economists to tell us it’s okay, and you don’t have to worry, nor ask questions, cause we know for sure.
Economics is just one step above the practice of Voodoo medicine, imo, economists always tells us what is going to happen, until something totally different does happen. And stomping your pretty little feet that Stuck is wrong, wrong, wrong will not change that history and present. The only point I have made is huge debt is not without risk in the future. And several people upthread have confirmed that. Doesn’t mean we shouldn’t ,if necessary, borrow a lot of money. IT JUST MEANS IT IS NOT WITHOUT FUTURE RISK..
Ailuridae
@Stuck in the Funhouse:
Honestly, you’re too hard-headedd to realize how ignorant you are.
I’m not stomping you are wrong; I’ve conclusively and repeatedly demonstrated it. You want this to be a “we have different opinions” argument. It isn’t. Its me knowing what I am talking about and you, plainly and laughably, being incorrect and unwilling or unable to see it.
But for fear that someone here might believe your fear mongering I have no choice but to correct your repeated misstatements of basic facts. And one of those is that China owing a small portion of US debt amounts to anything. That’s just wrong (and plainly stupid).
Nice dodge on Japan. Or maybe you think that Japan isn’t a US ally? Shit maybe you just hate Asians.
Stuck in the Funhouse
Wow. I think Ailurdae’s head just exploded.
Remember November
@Stuck in the Funhouse:
is BJ getting infected with faux outrage? Someone needs a trip to Stan Mikita’s stat!
Chris
@You Don’t Say:
This may be too late for you to see at this point, but that’s what you get on these blogs :-)
It’s hard to tell. The problem with any valuation of anything is, the value is based at least in part on perceptions. How many chickens equals one checkup? How many ounces of gold for a steak? How many dollars for that doggy in the window? Some are easier than others though: how many dollars for a Euro? Well, this Euro is pretty much indistinguishable from that one, and this dollar is similarly indistinguishable from that one (they have different serial numbers but who looks at those?), so we look at what “everyone else” is paying to get a good guess.
The art of valuation lies in making good guesses as to “what everyone else is paying” (now or, for attempting to estimate bubbles, “some time in the future”). In the housing bubble, I knew that one of two things had to happen eventually: either house prices had to fall sharply, or rents had to rise sharply. Aside from issues like location, square footage, amenities, and all the usual own-vs-rent arguments, owning house A or B or renting apartments C or D are all pretty much the same. Why rent apartment C at $3600/mo when you can rent apartment D, with the same qualities and neighborhood and so on, for $1200/mo? If apartment D is the only one at that price, there’s probably something wrong with it, but if the “going rate” for most apartments like that is $1200/mo, there’s probably something wrong with C charging $3600/mo. Similarly, why pay a mortgage on house if the going rate on house mortgages is about $3600/mo while rents are about $1200/mo? Eventually the two have to revert to historical norms, which is mortgages being about 1.2 to about 2x rents. Either rents must increase (to no less that about 2x mortgages, or $1800/mo) or prices must fall (to mortgage rates no more than about 2x rents, or $2400/mo). These valuators are very rough guides but the bubble is clear when we’re way outside them.
The problem with finding “historical norms” for the trade rates of currencies is, there aren’t any. :-) But there are some indications. In particular, we find that when people are “afraid globally” about various economic conditions, they have, in the last 200 years, turned to the United States for comfort. This raises the value of dollars. When the fear subsides they give up their security blanket and the value of the dollar falls. So to that extent, we can be nearly certain that there is a dollar bubble right now. Unfortunately, we cannot use it to estimate the size of the bubble, nor when it will go away (except that global panics take years to settle out: cf the Asian Crises of the 1990s).