Rather than gnashing their teeth over the deficit, the Bond Vigilantes will rejoice that we have found the True Path.
Currency intervention by Asian central banks helps to explain why America has so far been able to finance its deficit without higher American bond yields or a bigger fall in the dollar.
ECONOMIST: A further steep decline in the dollar seems inevitable
In America, paradoxically, the Greek crisis has, if anything, removed the pressure for deficit reduction, by reducing bond yields.
Markets had a weak open Monday as talk of spending cuts to address the rising national deficit pushed short-term bond yields up slightly higher.
But as the federal deficit swelled, the government bond market boomed.
By buying Treasury and government-agency debt, central banks have financed America's current-account deficit, and pushed down bond yields and mortgage rates, allowing America's consumer spending and borrowing binge to continue for longer.
Likewise, as higher tax revenues on capital gains reduce the budget deficit, this helps to reduce bond yields and so drives up the stockmarket.
The Spanish government delayed its budget for 2012 because of an election in Andalusia, created suspicions about the accuracy of its statistics, was cack-handed in its negotiation with the EU over a revised deficit target and messed up a bond sale just before Easter.
Getting politicians to take the deficit seriously may well be impossible unless the bond market forces them.
Peru has resorted several times in the past 18 months to sovereign bond issues to help keep the deficit under control.
The country funds much of the deficit with foreign investments in its stock and bond markets, which authorities and analysts say could become tricky as these investments are usually short term.
If the markets start to believe a country's deficit is out of control they will force its bond yields sharply higher, in effect tightening monetary policy.
Mr Osborne insisted the government would stick to its deficit reduction target, "keeping our credit in the bond markets and our interest rates low".
In particular, fiscal indicators such as deficit and debt levels appear to be weakly related to government bond yields for advanced economies with monetary independence.
The government will have to keep trimming spending, in order to get its deficit down to 3% by 2013, and to keep bond markets at bay.
There are many reasons why the bond market is failing to send the interest rate signals deficit hawks expect.
FORBES: A Budget Deal Is Staring Them In The Face. Here's Why Congress Won't Take It In 2013.
But Democrats were nervous about repaying such a bond out of general taxes in a state careening from one budget deficit to another, whereas Republicans balked at making farmers and water districts pay.
应用推荐