Bond Vigilantes In The Age Of Obamanomics
In a free and open market society, many forces come forward to protect against bad decision making and the folly of idealism.
Bond Vigilantes are an economic force that are beginning to rise up and bring economic reality to the Obama Administration's Government expansion through spending policies and the printing of money.
"The Vigilante - Fighting Hero Of The West" Image Credit: Columbia Pictures
This excerpted and edited from LaissezFaireLounge.com -
A Giant Economic Boycott
Pia Varma, LaissezFaireLounge.com - Friday, May 29, 2009
In these turbulent times when the government is going on an unprecedented spending spree, raising money and increasing its involvement in the economy, many of us have been wondering...who is going to save the day? Enter bond vigilantes. The bond vigilantes are a group of international investors who demanded higher Treasury bond yields from the late 1970’s through the 1990’s whenever there were fears about inflation and hyperinflation. During the credit expansion, the bond vigilantes disappeared but now that the government has been printing, spending and borrowing money like crazy and flooding the economy with dollars to beat the recession, the vigilantes are back with a vengeance.
What essentially happens is the bond vigilantes will short or sell US Treasury Bonds, which will cause the US government to pay higher rates to borrow money, forcing it to rein in spending. This is what happened when Clinton first got into office with idealistic government plans and huge spending initiatives. The bond vigilantes staged an economic boycott or protest against these initiatives by shorting Treasuries.
But who are these bond vigilantes? They seem like a group of pirates scouring the coast looking for trouble. Or a band of cowboys keeping a watchful eye on the world. In reality, they are just a bunch of savvy investors who understand that unbridled spending leads to massive borrowing, which causes interest rates to increase.