Bond Vigilantes Confront Obama as Housing Falters

Bond Vigilantes Confront Obama as Housing Falters

Uhhh what???

Found that on Drudge, sounded interesting so click the link and get…..nada.

Update: In comments Dave Schuler can see the story when he clicks the link, when I did this is the image I got,

Here is the meat of the story,

For the first time since another Democrat occupied the White House, investors from Beijing to Zurich are challenging a president’s attempts to revive the economy with record deficit spending. Fifteen years after forcing Bill Clinton to abandon his own stimulus plans, the so-called bond vigilantes are punishing Barack Obama for quadrupling the budget shortfall to $1.85 trillion. By driving up yields on U.S. debt, they are also threatening to derail Federal Reserve Chairman Ben S. Bernanke’s efforts to cut borrowing costs for businesses and consumers.

The 1.5-percentage-point rise in 10-year Treasury yields this year pushed interest rates on 30-year fixed mortgages to above 5 percent for the first time since before Bernanke announced on March 18 that the central bank would start printing money to buy financial assets. Treasuries have lost 5.1 percent in their worst annual start since Merrill Lynch & Co. began its Treasury Master Index in 1977.

“The bond-market vigilantes are up in arms over the outlook for the federal deficit,” said Edward Yardeni, who coined the term in 1984 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds. He now heads Yardeni Research Inc. in Great Neck, New York. “Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever.”

Which ties with the post I made further up about how buyers of government debt might not like the idea of running up U.S. government debt.

This part highlights the magnitude of Obama’s spending plans,

This time it’s different because the Congressional Budget Office projects Obama’s spending plan will expand the deficit this year to about four times the previous record, and cause a $1.38 trillion shortfall in fiscal 2010. The U.S. will need to raise $3.25 trillion this year to finance its objectives, up from less than $1 trillion in 2008, according to Goldman Sachs Group Inc., one of 16 primary dealers of U.S. government securities that are obligated to bid at Treasury auctions.

In other words the U.S. will have to borrow more than triple what it has had to borrow in the past.

And lets hope history repeats itself in this regard,

Ten-year yields climbed from 5.2 percent in October 1993, about a year after Clinton was elected, to just over 8 percent in November 1994. Clinton then adopted policies to reduce the deficit, resulting in sustained economic growth that generated surpluses from his last four budgets and helped push the 10-year yield down to about 4 percent by November 1998.

If this run up in the yields induces the Obama Administration to take a less grandiose approach to policy and reign in spending than that could be good thing. I hope the President doesn’t try that “I won,” schtick though. Because it looks like the bond market is saying, “Yeah, big deal.”

FILED UNDER: Media,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Alex Knapp says:

    Obviously, this is about British MI6 Agents whose licenses have been revoked trying to warn the President about a SPECTRE plot to control the world via the housing market.

  2. Dave Schuler says:

    From the link:

    “The bond-market vigilantes are up in arms over the outlook for the federal deficit,” said Edward Yardeni, who coined the term in 1984 to describe investors who protest monetary or fiscal policies they consider inflationary by selling bonds. He now heads Yardeni Research Inc. in Great Neck, New York. “Ten trillion dollars over the next 10 years is just an indication that Washington is really out of control and that there is no fiscal discipline whatsoever.”

  3. Steve Verdon says:

    Dave,

    That wasn’t there when I clicked the link, it said, “Story to follow.”

    Should have gotten a screen capture.

  4. Drew says:

    In his book, George Stephanopolous recounts the come to Jesus moment when Clinton realized, and then exploded “you mean to tell me my Presidency is in the hands of a bunch of effing bond traders??”

    Well.

    Despite all the puff and press adulation, its clear to me that one huge difference between Clinton and Obama is that Clinton actually was (is) very smart. Obama is simply half bravado, half slick presentation…with a razor thin resume….and gets away with it because there are precious few offering dissent. Good for him.

    But markets are what they are. “Yes we can” is a nice, breezy slogan for the weak minded, but will be an ineffective counter to rising interest rates whistling on the way up “yes we are.”

  5. odograph says:

    Pfft. Yeah let’s bend the story again so that it’s about who is President rather than say a once in 50 year credit crisis.

    Extra credit: Who appointed Bernanke? To what degree is the bond maybe-riot an outcome of his politically independent strategies?

  6. Drew says:

    You know, odo, sometimes you come with some of the most bizarre comments.

    “Yeah let’s bend the story again so that it’s about who is President rather than say a once in 50 year credit crisis.”

    “Bend” the story? “So that its about who is President??”

    Here is the story: there is an incredible amount of legitimate debate in the economic community as to whether all this spending will do any good – or cause harm (have costs) – in the short or long term. I posted (I think here, but maybe at Glittering Eye) a link to a seminar held by some world class economists from my alma mater who are not at all sure Obama’s spending policies are the right ones. But that’s the point. The current spending binge is a policy option, not some formulaic requirement handed down by the economic gods or dictated by the current situation and accepted by all. So Obama owns the policy, for better or worse. That is all that is being observed. No bending. BTW – Clinton “got it.” I’m not sure Obama is as wise.

    “Extra credit: Who appointed Bernanke? To what degree is the bond maybe-riot an outcome of his politically independent strategies?”

    That’s fine. But I haven’t been impressed that Obama is particularly shy about brow beating (or otherwise) anything or anyone in pursuit of his policy goals. Perhaps you are aware of some financial and automotive companies that he has seen fit to dictate terms. If you are inferring Bernanke is uncontrollable, I would suggest otherwise.

  7. odograph says:

    “Extra credit: Who appointed Bernanke? To what degree is the bond maybe-riot an outcome of his politically independent strategies?”

    That’s fine. But I haven’t been impressed that Obama is particularly shy about brow beating (or otherwise) anything or anyone in pursuit of his policy goals. Perhaps you are aware of some financial and automotive companies that he has seen fit to dictate terms. If you are inferring Bernanke is uncontrollable, I would suggest otherwise.

    Look, it’s a question of whether the ideological filter makes us smarter or dumber on this.

    I see a narrative passing through the late Bush and early Obama Presidencies. To put on blinkers and ignore it seems to me an avoidance of fact. It makes us dumber.

    Speaking of cars, when Bush kicked the car can down the road, it was with an implicit knowledge that Obama would step up to do a bailout. If Bush wanted, he could have forced BK then.

    Again there is more continuity than ideologues like to recognize.

  8. Drew says:

    “Speaking of cars, when Bush kicked the car can down the road, it was with an implicit knowledge that Obama would step up to do a bailout.”

    Could I get you to teach me that mind reading thing? It could be really, really helpful in my business…………or at, you know, bars, parties, parlor games….

    I hold no brief for Bush and his late term subsidy policies, your ideologue assertions aside. However, based upon history, I’m very doubtful that Bush would have been in the business of hiring/firing CEO’s, dictating the credit preferences of auto company cap structure participants………….or guiding those companies toward green cars.

    I could be wrong……..oh, hell, I’ll just say it. I’m not.

    BTW – give up the bending notion?

  9. Steve Verdon says:

    I see a narrative passing through the late Bush and early Obama Presidencies. To put on blinkers and ignore it seems to me an avoidance of fact. It makes us dumber.

    This is just idiotic and rather untrue. I’ve been highly critical of Bush in regards to TARP and his other spending. I haven’t been pretending that Bush did no wrong and everything is Obama’s fault. But Bush is out of office and no longer calling the plays. Obama is, and now he gets to own them because they are largely his plays.

    Now you can argue, yeah but he inherited this economy. Okay fair enough, but if he makes a bad call to deal with the crappy economy you can’t mitigate the bad call by saying, “But if it weren’t for the bad economy….” The issue isn’t: ss the economy good or bad; because it down right sucks. The question is are the policies that Obama is putting in place going to be good, bad, both. There are both short and long term implications. And finlly as Prof. John Taylor has noted, there are damn few economic theories that argue you need economic stimulus for a recession in year N and N+8. There is no recession on record lasting past 44 months, it strikes me as damn unlikely a recession will last 96 months.

    Drew,

    It isn’t mind reading that Odo is promulgating, but an alternate history. Arguing about it is stupid and pointless as are many of Odo’s comments. Now suppose we go back in time with Calvin and Hobbes and Bush were to force BK on GM and Chryselr…..

    Waste. Of. Time. Arguing about what we could have observed but didn’t is quite frankly rather unscientific. Comming from Odograph who is constantly bitching and whining about economics lack of scientific rigor is most ironic.

  10. odograph says:

    I see a narrative passing through the late Bush and early Obama Presidencies. To put on blinkers and ignore it seems to me an avoidance of fact. It makes us dumber.

    This is just idiotic and rather untrue. I’ve been highly critical of Bush in regards to TARP and his other spending. I haven’t been pretending that Bush did no wrong and everything is Obama’s fault. But Bush is out of office and no longer calling the plays. Obama is, and now he gets to own them because they are largely his plays.

    Hold on there cowboy. Do you suppose the thread in the narrative might be that power brokers in Washington and New York were on the same page then and now?

    You guys are “Presidentializing” something that in fact isn’t.

  11. odograph says:

    (If the entire Washington power structure is stacked for trillion dollar wealth transfers, calling it “Bush’s” or “Obama’s” isn’t fair to them, but it isn’t fair to you guys either. You blind yourselves to the political reality. Put in any US President and you’d have GM bailout of some kind. Put a bunch of Wall Streeters into the Fed and the Treasury and you’d probably get some kind of AIG bailout as well. Dissent, such as it was, didn’t come from anyone in any kind of power.)

  12. odograph says:

    Maybe this helps … if I say “why was Benanke’s strategy the same under Bush and Obama” the answer “I was against it then too” doesn’t really answer the question.

  13. Steve Verdon says:

    Hold on there cowboy. Do you suppose the thread in the narrative might be that power brokers in Washington and New York were on the same page then and now?

    You guys are “Presidentializing” something that in fact isn’t.

    Look how stupid you are.

    I think part of the problem here is this incestuous relationship between Wall Street and D.C. Switch back and forth and in the process end up a mutli-millionaire working 1 day a week.

    I wrote pretty much the samething here. And here as well, and looky you were participating after I made that comment. And also here, where once again you were an active participant in the discussion after I noted the problem you are now bringing up.

    C’mon be honest, you got the idea from me.

  14. odograph says:

    You are so weird Steve. You like to be abusive first, before admitting that I am right, and that you actually agree with me.

    If this was about Wall Street and the continuing strategies of the Fed, why did you make a stupid post today about the bond market responding to Obama?

    Your title, in case you forget it:

    Bond Vigilantes Confront Obama as Housing Falters

    Now you want to pretend that wasn’t “Presidentializing”

  15. odograph says:

    Note: The idea that the bond market was responding to “Obama’s” plan does not fully capture reality. This is the Treasury plan, launched by Bernanke under the Bush administration and continued today. Obama is certainly OK with it, and he has common cause, but he apparently has common cause with the whole Washington and New York machine.

    If you want a break from that, your headline should be:

    Obama should break from the Fed/Treasury plan and do X!

    What’s X by the way? A more radical libertarian plan than Benanke and Pauslon authored in the last Republican administration?

    If so you are asking for a change in the whole Washington power dynamic, and not a simple change in Presidential goals.

  16. Steve Verdon says:

    You are so weird Steve. You like to be abusive first, before admitting that I am right, and that you actually agree with me.

    What the Hell? I’ve been pointing out the problem you bring up here in no less than 5 other posts/comments and yet you are the one accusing me of “bending the story” because I mention President Obama’s role in the fiasco since he took office.

    If this was about Wall Street and the continuing strategies of the Fed, why did you make a stupid post today about the bond market responding to Obama?

    Because Obama appears to have not learned the lesson Clinton did or is about to learn it. He is going down the same path that Clinton did: that his stimulus/spending plans just simply aren’t going to work out because the bond market is going to make his life miserable.

    Did you even read the article?

    Oh, and you do realize that the bond market is part of “Wall Street”?

    Note: The idea that the bond market was responding to “Obama’s” plan does not fully capture reality. This is the Treasury plan, launched by Bernanke under the Bush administration and continued today.

    No, this is simply not true…or more accurately only partly true. The bond market is responding to everything. TARP, budget deficits, stimulus spending, and so forth. Some of it is Bernanke, some of it is Bush, some of it is Obama, et. al. To say it is all Bernanke/Bush is a load of disingenous nonsense. Something I’d expect from a Democratic Undergound poaster.

    Your title, in case you forget it:

    Jesus. “My title” was the title of the bizzaro article that contained no article. The article was then put back/updated/whatever and then I updated. So it isn’t “my title”. It is the Bloomberg title. Here let me go through it step-by-step for your pea brain.

    1. I go to Drudge.
    2. I see what looks like an interesting title to an article.
    3. I click the link.
    4. The title is there, but no article.
    5. I scratch my head.
    6. I click reload.
    7. I shut down my browser and try again.
    8. Same thing.
    9. I come here and post on it.
    10. Dave comments that he can see the article.
    11. I note my browser still has the funky article so screen capture it, hit reload and see the article.
    12. I update.
    13. Your head explodes.

  17. odograph says:

    You posted a quick and dirt Obama-slam and I called you on it.