The Markets Made Me Do It! — Brian Romanchuk

Of course, this is a variant of the “bond/currency vigilantes” stories that neoliberals love, and so features prominently in market discourse.

The reaction in the bond market should have been predictable by the Chancellor. In the current environment, looser fiscal policy is going to be met with higher policy rates. The trickier part of the situation was the fragility of the liquidity situation of U.K. pension funds — which the Treasury should have been aware of, since they have an entire team dedicated to meeting investors to gauge demand along the yield curve.

Returning to the MMT wrangling, since none of this should surprise anybody, it tells us nothing about MMT. However, I want to push back against the “financial markets constrained the government” narrative.

The MMT argument is that inflation constrains fiscal policy, and that is what happened. Under current institutional arrangements, the central bank reaction function is to hike rates as inflation rises (modulo the growth outlook). The Truss government should have been aware of the potential of such a reaction, and so this is just telling us what happens when amateurs run fiscal policy.

Saying that anything else is the constraint runs into problems.

Even scarier is when amateurs run foreign policy and military policy.  In this regard, Liz Truss doesn't even qualify as an amateur. Regarding fiscal policy, she is dangerous to Brits. Regarding foreign and military policy, she is a danger to the world. However, the reality appears to be that with respect to foreign and military policy, politicians are simply tools of the Deep State and oligarchy in the UK.

Bond Economics
The Markets Made Me Do It!
Brian Romanchuk