The Bond Vigilantes - WSJ.com.
This is worth watching in the coming weeks and months. The government has significantly increased spending to combat the recession. The assumption is that the spending will be financed by issuing debt and/or printing money. This can be done by issuing Treasury securities which are then sold to investors or by selling the securities directly to the Fed. Recent Treasury auctions have proven challenging for the government has buyers have demanded higher yields. To conclude a successful auction, the government essentially has to go with market demands. At some point, either the government refuses, which results in an inability to finance spending, or buyers refuse, which results in an inability to finance spending. Clearly, in both cases, if the government can't issue debt, it can't finance continued spending.
I would like that to be a good thing, because it should lead to the government searching for ways to reduce spending but it will likely lead to higher taxes instead as the government looks to taxpayers to finance the shortfall. Hopefully, I'm wrong and we'll be able to finance the increased spending without higher taxes and without higher inflation.
This is worth watching in the coming weeks and months. The government has significantly increased spending to combat the recession. The assumption is that the spending will be financed by issuing debt and/or printing money. This can be done by issuing Treasury securities which are then sold to investors or by selling the securities directly to the Fed. Recent Treasury auctions have proven challenging for the government has buyers have demanded higher yields. To conclude a successful auction, the government essentially has to go with market demands. At some point, either the government refuses, which results in an inability to finance spending, or buyers refuse, which results in an inability to finance spending. Clearly, in both cases, if the government can't issue debt, it can't finance continued spending.
I would like that to be a good thing, because it should lead to the government searching for ways to reduce spending but it will likely lead to higher taxes instead as the government looks to taxpayers to finance the shortfall. Hopefully, I'm wrong and we'll be able to finance the increased spending without higher taxes and without higher inflation.
