Edward Harrison — How bond market vigilantes force rates higher

Bottom line: the deficit is mostly an endogenous variable – the result of how existing fiscal policy interacts with private sector savings and consumption decisions. In economic parlance, the deficit is the result of an ex-post accounting identity, not an ex-ante economic variable to target for economic policy. The deficit automatically increases during an economic crisis, as it did after 2009 everywhere in the industrialized world. The deficit also automatically declines when private net savings declines, as it does when an economy recovers from a private sector debt crisis. That’s what’s happening now. In today’s circumstances, it is completely unrealistic to expect high levels of inflation that would force the central bank to raise policy rates. Right now, inflation and inflation expectations are actually decreasing, not just in the US but globally.

Credit Writedowns
How bond market vigilantes force rates higher
Edward Harrison