After a peak in American obligation rates, the president of the time, Bill Clinton, to retreat from his spending plans in 1993, James Carville, one of his best advisers, said The Wall Street Journal, “I thought that if there was a reincarnation, I wanted to come back as president or pope or a baseball striker .400. But now I would like to come back as a bond market. You can intimidate everyone. “
During the next two decades, interest rates on the debt of the American government fell and stayed on the ground. It seemed that the bond market had abdicated its role as a great legislative tyrant.
Well, the intimidator is back. He has already won his first fight with the Trump administration, on prices – and this week, he is clearly faced for another battle on the reduction and the massive tax expenditure pack of the GOP Maison.
The initial victory of the bond markets occurred when President Donald Trump suspended the prices he announced on April 2 only a few hours after their entry into force on April 9. Why the almost immediate cave? What The president said: “I was looking at the bond market. The bond market is very delicate. I looked at him. But if you look at him now, it’s, it’s beautiful. The bond market at the moment is magnificent. But yes, I saw last night when people became a little uncomfortable.
What the president has seen is an acceleration of a post-liberation day sale in the debt of the American government. Investors were discharged very sarys, sending yields. (When the price of an obligation decreases, the relative amount it pays to investors, called the yield, increases. It is a mathematical relationship similar to the saw, so that the financial press often uses “the prices of bonds drop” and “gives an increase” interchangeably.)
The tumult on the American Treasurys market is an event with financial consequences unlike any other. There is 28 dollars in American government obligations. This debt is a global financial refuge and an international reference. Billions of billions and billions of dollars in mortgage, personal debt and business debt are at the cost of American treasurers. If you were to choose a number to follow the vitality of the American economy and the centrality of the United States government in the world order, it would be the price of treasureals.
And now, the bond market has its say on the massive tax reduction and reduction of the President’s expense, which the GOP house has barely succeeded in adopting early Thursday:: Treasury yields have climbed In recent weeks, the details of the legislative package have been developed and are now much higher than the rate This forced the “break” rate in April.
A large part of the coverage to explain why the bond market does not like the “large and beautiful bill” focuses on the fact that it is Policy changes will increase public debt By reducing taxes without increasing anywhere almost an equal amount of income elsewhere. But the bond market does not always react in this way to an increasing national debt. The US post-clint administration is an excellent example: the debt has increased and the prices have dropped and stayed at the bottom for decades.
Part of this, of course, is due to a global phenomenon which has emerged from the 2008 financial crisis known as “zero interest rate policy” or known as ZIRP, where central banks around the world have maintained interest rates or around zero for years.
But a large part of the reason why the bond market hates GOP tax cuts is how They increase the debt: the bill reduces taxes for the rich while reducing spending on social security nets. Overall, the economist Justin Wolfers summary Like “the greatest redistribution of poor people in wealthy in American history”.
Consequently, the GOP budgetary bill will not only increase the government’s annual deficit, it will harm economic growth. Indeed, the tax reductions to the rich provide less juice to the economy than other types of expenditure. The rich are, well, already rich, so they have less what economists call “the marginal propensity to spend” the additional money they can keep. Trump’s budget also reduces programs that directly increase economic growth, as Advantages of clean energy tax of the law on inflation reduction.
Add to this the fact that Trump prices remain at levels that are equivalent to One of the largest tax increases in American historywhose cost will be disproportionate by medium and low -income consumers, and the result is simultaneously and very hypocritical Tax austerity and debauchery This will hinder growth and increase national debt.
During all this time, Europe, after more than a decade of destructive membership with austere tax principles, is finally accelerate public spendingGiving investors in search of a debt issued by relatively prosperous savings governed by the rule of law an alternative to American Treasurys.
This is more than enough to attract the bond market to another confrontation with the Trump administration. The first time, the president did what the bond market wanted. This time, with the apparently dead Republicans to adopt a project announcing prices on a whimThe intimidator of the bond market will have to become even more aggressive to ensure that the GOP makes its auctions.
