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Home Publications Blogs Beat the Press Debt and Interest Rates: Isn't There a Bond Market in the United States?

Debt and Interest Rates: Isn't There a Bond Market in the United States?

Friday, 15 April 2011 21:55

The NYT contrasted the situation of the United Kingdom when it sells its debt to the United States:

"In that sense, comparing the British and American deficit-cutting plans becomes a bit more difficult. In Europe the bond market is the ultimate judge of deficit-reduction plans. In the United States, by contrast, the global demand for Treasury bills, and the benefits of the Federal Reserve Board’s easy-money “quantitative easing” policy, have kept 10-year bond yields well below those of Britain."

Let's see, the bond market determines interest rates for British debt and who exactly is determining the interest rate on U.S. debt, "global demand?" In both cases the bond market determines interest rates, although the exact set of factors will differ. It is interesting that the interest rates on U.K. and U.S. debt is almost exactly the same at the moment, which suggests that the markets view them as equally risky.

Comments (4)Add Comment
written by joe, April 16, 2011 3:28
When they want to sell a debt crisis they say QE2 is driving down interest rates. When they claim QE2 is ineffective they say it drives up interest rates.
written by izzatzo, April 16, 2011 9:22
Exactly. Any economist knows that both the USA and UK are infinitely small price takers in a competitive global bond market and therefore cannot possibly influence interest rates determined by aggregate global demand in global bond markets.

That interest rates for the USA and UK are comparable just means the dual paths to economic destruction pose equal risk as well, either through socialist quantitative easing or austrian austerity tightening.
Why Do Deficit Hawks Ignore the Global Bond Market?
written by Paul, April 16, 2011 10:09
Since the UK has gotten no reward from the global bond market for drastically slashing government spending compared to the profligate USA, what exactly is the point of massive reductions in government spending?
written by Calgacus, April 16, 2011 7:16
@Paul: Making the rich richer and the poor poorer.

The whole idea that governments with their own currencies, like the UK & US, are in any way beholden to the bond market is insane, as izzatso satirizes above. The UK & US can, and sometimes do, absolutely determine what interest rate they pay "the bond market". They are monopoly issuers of their own debt. As long as they have functioning economies, as long as there is an economic dog to wag the financial tail, there will be demand for their securities, and they can set what price they want.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.