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<< Bond vigilantes, who can bring fiscally irresponsible politicians to heel I don't want to give people ideas, but at the same time this is not exactly new t

<< Bond vigilantes, who can bring fiscally irresponsible politicians to heel I don't want to give people ideas, but at the same time this is not exactly new to anyone following that set of news. During last EU fiscal crisis, EU came up with a novel approach to handling bond issues. Haircut[1]. [1]https://www.sciencedirect.com/science/article/abs/pii/S1057521920301113 https://www.sciencedirect.com/science/article/abs/pii/S10575...

toomuchtodo 1y ago
Treasuries only receive the favorable yields they do because they were considered the safest asset in the world. Any indicator of potential haircut is going to cause a rapid (further) loss in confidence and a spike in yields, leading to a debt spiral. This is why there was a fear of the implications of DOGE controlling the Treasury payment system (BFS), potentially leading to non payment and default. The capital markets are built on a foundation of trust. If you want continued access to capital (and with debt at ~123% GDP, it should be obvious that the US has no choice but to have continued access to the bond market), you must respect the trust relationship. https://www.cbpp.org/research/federal-budget/doge-access-to-treasury-payment-systems-raises-serious-risks https://www.cbpp.org/research/federal-budget/doge-access-to-...
- A4ET8a8uTh0_v2 1y ago
  I will admit that, at the time, I did not see EU debt holders accept it, but accept they did. I know that cultural differences in US may require a different approach that go beyond PR spin ala 'temporary refund adjustment' since there is money on the line, but I can't help but wonder if it is not coming anyway.
  - toomuchtodo 1y ago
    https://www.brookings.edu/articles/what-are-the-risks-of-a-rising-federal-debt/ https://www.brookings.edu/articles/what-are-the-risks-of-a-r... https://www.jpmorgan.com/insights/markets/top-market-takeaways/tmt-how-worried-should-you-be-about-the-us-debt-and-deficit https://www.jpmorgan.com/insights/markets/top-market-takeawa... https://www.pbs.org/newshour/politics/how-a-debt-default-could-affect-you https://www.pbs.org/newshour/politics/how-a-debt-default-cou...

toomuchtodo 1y ago

Treasuries only receive the favorable yields they do because they were considered the safest asset in the world. Any indicator of potential haircut is going to cause a rapid (further) loss in confidence and a spike in yields, leading to a debt spiral. This is why there was a fear of the implications of DOGE controlling the Treasury payment system (BFS), potentially leading to non payment and default. The capital markets are built on a foundation of trust. If you want continued access to capital (and with debt at ~123% GDP, it should be obvious that the US has no choice but to have continued access to the bond market), you must respect the trust relationship. https://www.cbpp.org/research/federal-budget/doge-access-to-treasury-payment-systems-raises-serious-risks https://www.cbpp.org/research/federal-budget/doge-access-to-...

A4ET8a8uTh0_v2 1y ago
I will admit that, at the time, I did not see EU debt holders accept it, but accept they did. I know that cultural differences in US may require a different approach that go beyond PR spin ala 'temporary refund adjustment' since there is money on the line, but I can't help but wonder if it is not coming anyway.
- toomuchtodo 1y ago
  https://www.brookings.edu/articles/what-are-the-risks-of-a-rising-federal-debt/ https://www.brookings.edu/articles/what-are-the-risks-of-a-r... https://www.jpmorgan.com/insights/markets/top-market-takeaways/tmt-how-worried-should-you-be-about-the-us-debt-and-deficit https://www.jpmorgan.com/insights/markets/top-market-takeawa... https://www.pbs.org/newshour/politics/how-a-debt-default-could-affect-you https://www.pbs.org/newshour/politics/how-a-debt-default-cou...