In the first years of the Clinton administration, James Carville famously said, “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate anyone.” Well, it seems like the bond market is intimidating everyone once again, or should be.
There’s been a sharp increase in the interest rate the government must pay on the bonds it’s selling this week, which has prompted expressions of concern from the Wall Street Journal and the Atlantic’s Megan McArdle.
John Taylor, former deputy Treasury secretary, fears the big increase in the national debt, projected to rise from 41% to 82% of gross domestic product, will lead to hyperinflation, and to judge from the bond market he’s not the only one.
(For a good graphic of the projected Obama deficits, check out this post from Glenn Reynolds at Instapundit.)
The ability to borrow money cheaply is a tremendous asset to any government, and we seem to be squandering it. From the late 17th to the early 19th centuries Britain was able to hold its own and prevail militarily against France, though France had four times Britain’s population, because the British government could borrow money at 2% to 3% interest. France paid tax farmers something like a quarter of its revenues to collect taxes. We seem to be moving away from the British model—not a good idea.
