“the bond market keep sovereigns ‘honest’ “

A week ago we explained quite clearly why instead of encouraging self-defeating, short-termist behavior by promising to save Europe’s insolvent countries if and when needed, which does nothing to resolves Europe’s problems and make it worse in exchange for a brief respite from bond selling, the ECB should be doing precisely the opposite: encouraging local governments to understand that there is no magic bazooka from the central banks. Specifically we said that “this Catch 22 of confounding cause and event can continue seemingly indefinitely, although in reality it can’t. Because fundamentally what the bond market does is keep sovereigns “honest” – just as Schauble said a week ago, Spanish yields at 7% are not the end of the world – instead what they are is a signal to the country to get its spending in control in order to reduce its deficit, and fundamentally get its house in order – yes, that means getting government spending to a sustainable level and firing hundreds of thousands of workers, as well as probably raising taxes even more. It also means pain all around, but the pain is inevitable and will only be worse the longer reality is denied.” This logic is so clear that only a lifelong economist, PhD or Goldman apparatchik can not grasp it: sadly that accounts for most of the people “in charge.” [bron]

2 thoughts on ““the bond market keep sovereigns ‘honest’ “

  1. Hilarisch. Tegelijkertijd triest gevoel. Zou hij dat nou echt geloven? Als dat zo zit er een onstellend naieve idioot, als hij liegt (logischer) dan liegt hij wel heel erg dom of heeft een onstellend lage dunk over de intellligentie van het publiek.

    Zucht. En dat zijn dan je bestuurders. :(

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