My piece for Jacobin were I explain why higher bond yields are not at all a result of a fiscally irresponsible government being disciplined by bond vigilantes. They are, instead, a deliberate policy choice that shifts income from workers and borrowers to wealthy bondholders. Interest rates, at both end of the yield curve, are shaped by Federal Reserve policies rather than simply by market dynamics. Concerns about financial fragility are exaggerated, and the danger is that the higher yields, that lead to a higher interest rate bill, and a higher debt-to-GDP ratio, would be used politically for constraining social spending. Ultimately, this situation reflects political choices rather than financial necessity.
Too low interest rates can be just as harmful to working people via asset price inflation.
ReplyDeleteOne of the most important factors here is the risk weighting of assets
Well, I would disagree. First, you can regulate the asset markets to avoid bubbles (the opposite of what we are doing with crypto, BTW). Second, even when the bubble bursts, the Fed can rescue the losers. The issue is who they rescue. For example, after the 2008 housing bubble crisis they saved Wall St, not homeowners. That was a mistake, for sure. The risk is really the excessive concern with inflation, and the bias for austerity
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