Bond Vigilantes: A Looming Threat to US Economic Policy?
The article explores the historical and current challenges posed by 'bond vigilantes,' who impose economic discipline on governments by selling off bonds, increasing borrowing costs. Both the Clinton and Trump administrations faced or are facing this issue, with implications for fiscal policy and market stability.
In 1993, President Bill Clinton battled the impact of 'bond vigilantes' who threatened to undermine his administration's fiscal policies. Facing a surging U.S. debt, Clinton had to implement unpopular measures, including tax hikes, to stabilize the economy amidst fears of runaway bond market costs.
As Donald Trump assumed the presidency, similar concerns resurfaced, with the U.S. debt-to-GDP ratio nearing 100%. Reuters' analysis indicated that unchecked profligacy could soon surpass levels not seen since post-World War II. Rising bond yields further added to concerns about Trump's ability to implement his policy agenda.
Experts warn that without fiscal caution, bond markets could react violently, mirroring past instances where governments lost investor confidence, resulting in steep economic and political consequences. Such a reaction would challenge Trump's plans for tax cuts and economic stimulus, testing his administration's policy framework.
(With inputs from agencies.)
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