I occasionally come across some myopic commentators who ask “where are the bond vigilantes?”
Bond vigilante are investors, who according to Wikipedia.org, "protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields". The term “Bond Vigilante” was coined in 1984 by economist Ed Yardeni.
The implication is—the absence of bond vigilantes seem to justify reckless government ‘spending’ policies, which for mainstream ideologues, imposes little adverse side effects on the economy or on the markets.
Yet this view hardly incorporates the impact of the massive interventionism applied by the world governments on the international bond markets, as well as the impact of financial globalization.
For them, because interest rates remain low, then governments are justified to keep running a spending binge.
Anyway the same camp, characterized by their reverence to government interventions on the market to thwart ‘deflation’ had earlier been insisting about “where is inflation?”
Well, the downgrade on the outlook of US debt by the credit rating agency S & P 500 seem to presage the return of the bond vigilantes.
The Bloomberg reports, (bold emphasis mine)
Standard & Poor’s put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt.
“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said in a report today. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”
At the end of the day, what is unsustainable won’t last.
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