Bond Market Silence

That silence you hear is the bond market getting into a panic over the US debt. Not. For all you debt hawks and inflation worriers out there I want to draw you attention to today’s bond yields. They are going down. In fact US debt is now just about as cheap as it has been at any time this year. Those pesky bond buyers who are about to call in their debt and run away from US debt seem to be doing the opposite: they are flocking to buy it. We appear not to be able to print enough of the stuff.

Of course one reason is the total mess the Europeans have made of their currency. When compared with their policies even the US looks fiscally sensible.

Bond owners are, by definition, risk averse folks. They are looking for a safe place to park their money. They are not naturally jingoistic, so they don’t flood into US debt for faux patriotic reasons. They tend to be hard nosed and finicky. Some of them even have calculators to work out the risk/return trade-off on the debt they buy. So I think it reasonable to assume that lower yields on US debt reflects a relative improvement in the long term outlook for the US vis a vis the alternatives.

Will these lower interest rates put an end to the debate over the urgency to cut the debt? No of course not. That debate has not once been driven by fiscal concerns. Our fiscal outlook has nothing to do with the urgency on the part of Republicans to cut social spending. That is a purely ideological program. They want small government, not necessarily small debt.

The credit markets are telling us that they believe the US will figure out how to make its payments on its debt. Whether that means raising taxes or cutting spending is a matter of taste for us, not them.

They only care about repayment. Right now they are saying that they see no problem.

So why do we?