Bond vigilante

This is the Debunking Economics podcast with Steve Keen and Phil Dobby.

Well, that is one of the hosts of CNBC's Squawk Box saying that it's government debt that has been pushing bond yields higher and the bond vigilantes are making a judgment on them.

So does that mean bond traders are in charge now, not governments? Is democracy in the hands of the trading room floor? That's this week on the Debunking Economics podcast.

So, Steve, I want to revisit bond yields again this week, only because they keep on rising.

So they don't see their primary role in that sense of driving the economic activity up, at least in the finance sector, by putting up the rate of interest.

But it is a fact, isn't it, that a government will always get hammered if it ups its spending.

If that's seen by bond vigilantes or by foreign governments, that's a problem as well, isn't it? A lot of the people in the secondary markets now who are buying...

US treasuries come from overseas, same for the UK or all over the world.

And so those are the things that are being priced in.

And if you want to understand what can happen, I won't waste your time now, but go ahead and Google or AI or whatever your search of choice is now, bond vigilantes in the 80s.

And it will provide you with a wonderful history lesson on what happens when global rates become untethered from monetary policy in the Fed, and the market takes over and prices risk, inflation risk.

It's well worth 10 or 15 minutes of your time to research what happened with what would have been deemed the Bond Vigilantes in the 80s.

And take it as a, you know, just take it as a cautionary tale.

Interesting.

You know, I haven't, I'm definitely going to go look this up now, but I am going to start a band and name it Bond Vigilantes.

Because that's such a cool name.

And I think that where we are right now and what the way the fed's approaching this, which is fine, they're approaching this as crude up rate hikes.

That's what they confirmed to the market, but the market also knows that If energy goes up, they have the F the bond vigilantes on the long end know that as long as energy is a problem, they don't need to buy because the fed's going to keep juicing the curve.

It's that simple.

So you're kind of like that percent tactic earlier this or in the last month, the fed is playing this game too, where why shouldn't bond yields take out 5% at this point? I mean, we're in a stagflationary regime.

I mean, if you look at just the curve, right, you look at where we are right now on the the two year right um we let's actually see if we can do this a little bit delayed but it does the job so we're pressing in probably another three hikes right we did one yesterday i didn't update in the fed curve but we came into this year with rake we came into the end of last year we were we were still pricing in rate cuts two rate cuts into last year.

Then all of a sudden, you notice once March comes around, we go through zero right here, and the Fed starts pricing in hikes.

Miraculously happening right around when Iran's conflict emerges, right? In my opinion, there's only two ways to fix the bond market at this point, and that's going to be a flywheel that eventually burns yields out and bond vigilantes load in because there's demand destruction, there's a recession, or you fix Iran.

And the only way it seems that we're going to fix Iran at this point is after midterms, because it seems like the only solution at this point is boots on the ground.