The gents at Capital Gains and Games—and soon, likely, the ma’am at EconMom—are in the throes of ecstasy (not necessarily the drug). There are “bond vigilantes” on the horizon. Stan Collender:
The bond market “vigilantes” — the same people who forced the Clinton administration to propose and push for deficit reduction — are starting to say that the moon, stars, and planets may line up again in 2009 to force the next president to do the same thing.
I fear that the next president and Congress may ignore the markets and enact expensive new tax and spending programs anyway. We’ve been through this fight before in the 1980s.
Back then, Wall Street economist, Ed Yardeni, coined the term “bond vigilantes” back when Ronald Reagan ran the highest peacetime deficits in history. Yardeni’s prediction of higher interest rates made him very well known among investors. On May 29th, Ed issued a similar prediction….
Hopefully, the next president will take a good look at President Clinton’s first year in office, 1993. Robert Rubin convinced him to enact a strong deficit reduction program. It built upon the even stronger deficit reduction of 1990 by President Bush 41, which cost him his second term. In 1994, President Clinton lost control of Congress. These courageous, but politically costly, actions by presidents of both parties made the 1990s the best decade for economic growth since the Second World War, and they also produced budget surpluses in Fiscal Years 1998 through 2001.
Now, I’ll quibble whether “No nude Texans” cost GHWB a second term; he didn’t seem to want to be president, which is why I did not hesitate, the day before the election, to bet $10,000 on William Jefferson Clinton being elected in 1992.* But there is no sign from the McCain camp of listening to this advice—and, unlikely his example, no indication of fiscal responsibility from the current Republican administration—so we have to wonder if Davis is serious in advocating that Obama try to be a one-term president with an opposition Congress for the second half.
But it is left to Don Pedro to tell the truth and Shame the Devil [link added; sorry forgot earlier]:
[Howard Gleckman] ominously raises the following as part of his argument:
Holtz-Eakin would enjoy fiscal credibility in the financial markets. The bond vigilantes have not cared about deficits for years, but they tend to get interested when Democrats run the government. Just ask Bill Clinton. Today, they see Obama as little more than a big-government liberal with a good speech. This might show them he is more complex than that. [emphasis mine – klh]
Gleckman is a former reporter for Business Week, and no doubt still runs in financial press circles. Funny how the press has almost never reported that the president should be worried about “credibility” with the bond markets while Bush was in the Oval Office. Funnier still how a prominent business reporter can imagine that Holtz-Eakin–who is pimping what must be the least credible set of tax and budget proposals ever offered in a presidential campaign–would bring said credibility. [italics mine – klh]
Indeed, the Bloomberg article that Stan Collender and Pete Davis cite, but don’t bother to mention the title of, is “Bond Vigilantes Who Gave Bush a Pass May Ambush Obama or McCain.”
EconomistMom and the rest of the Concord Coalition are waiting in the wings, expecting them to do their bidding.
*The bet was vetoed by my boss at the time, I’m sad to say.