There’s a Bloomberg article entitled: “Ruin Your Health With the Obama Stimulus Plan: Betsy McCaughey“.
The story’s about some hidden details in the Obama stimulus plan regarding a federal medical record system. It could be that this little detail will not be popular with the Bond Vigilantes, who kept Clinton in check when he tried to revamp the medical system in the States.
Media Matters takes issue with how the bill is characterized by McCaughey, particularly the Orwellian overtones of the federal government using a medical records database to guide practitioners, rather than letting practitioners use it simply as a tool in their point-of-care delivery methods.
The Austrian Economists have dubbed this little detail “Hillarycare by the backdoor” and are screaming bloody socialism accordingly.
Denninger, who writes that the market is not going to react well to this detail if the bill is passed, likens this bill to the one Bill Clinton tried to push through back in the 90’s:
The Government cannot backstop it all. If you try the government fails outright. The market is bigger than you, it is bigger than The Fed, it is bigger than Treasury. You are subservient to The Market, not the other way around. Go ask Bill Clinton about The Bond Market when he tried to ramrod his Hillarycare plan through and what the reaction was. That’s 1/100th of what you’re about to experience.
So while everyone is looking at the Dow as an indicator of Reindhardt’s prognostications, further bloodletting could manifest in the bond market.
The Financial Times writes:
“When Robert Rubin was advising President Bill Clinton, he warned that profligate government spending … would be punished by the bond vigilantes with a sharp increase in long-term interest rates,” says Ed Yardeni, president of Yardeni Associates, a research firm. “Neither [Lawrence] Summers nor any of the other White House brain trust seem to have alerted President Obama that the invisible hand of the bond market can be much more powerful than the visible fist of the government.”
James Carvelle, former Clinton advisor said in December:
Clinton’s proposals to spur the economy early in his administration in 1993 were stymied by concern how bond investors would react, according to James Carville, a Clinton consultant during the 1992 presidential campaign.
“Early in the Clinton days, the hallmark of policy was, if you did this, how would it affect the bond market?,” Carville said in an interview last year. “Every time I would talk to someone, they would say, ‘You can’t do that, it will freak the bond market out.’ I said, ‘Goddamn, whoever the bond market is, these bastards are powerful.’”
The potential for massive deficits has done nothing to damp demand for government debt as the U.S. prepares to spend $8.5 trillion to bailout financial institutions, homeowners and the economy. The biggest deficit as a percentage of the economy was 6 percent in 1983. A trillion-dollar 2009 gap would top that.
It works like this: in order to fund the stimulus, the US government is going to borrow. The trillion or two in budget shortfall will be made up through borrowing. So who’s the U.S. going to borrow from? It’s counting on the fact that US Treasuries may provide the least risky return for investors, and so they will line up in droves. But if that demand isn’t strong enough, the US will have to pay higher interest rates, and so we’re back to the old “crowding out” hypothesis. The bloodletting may not happen, because this time things are different – even with low yields, US Treasuries are still attractive, due to the absence of anything else around the globe that’s offering security (besides gold).
Back in December, Bloomberg wrote:
To prevent yields from rising, Fed policy makers indicated that the central bank may buy Treasuries. Fed Chairman Ben S. Bernanke suggested in a Dec. 1 speech that he would consider such a measure, saying one option is to buy “longer-term Treasury or agency securities on the open market in substantial quantities.”
“If there is a whiff of anything getting worse, the Fed can just go downstairs and start that printing press,” said Kevin Gaynor, head of economics and interest-rate strategy at Royal Bank of Scotland Group Plc in London. “They can easily stop targeting the federal funds rate and start targeting a two- or five-year Treasury yield.”
Today, Bloomberg writes about the Return of the Bond Vigilantes and the L.A. Times argues it’s government who’s getting crowded out.
