And they’re pissed
Trump’s Big Butt-Ugly Bill has one opponent he can’t bully into submission:
Currently, the US makes up for any budget deficits it incurs by issuing bonds of various durations to cover the difference. It auctions those bonds — essentially IOUs issued by the Treasury Department — on the open market, where investors (banks, hedge funds, foreign central banks, pension funds, etc.) can bid on them.
To get them to bid, the US has to pay interest on the bond. And when the US borrows a lot, and especially if its fiscal policy indicates that the country may reach a point where it can’t pay back what it owes, investors will demand to receive more interest to compensate for the risk of default. That means the US has to pay more every year to service its past debt, and those payments in turn become future debt. If the interest they demand is high enough, the result can be an economic downturn, an upward debt spiral, or both.
While politicians pay attention to all kinds of economic indicators, from the unemployment rate to the stock market, the bond market is a different and more powerful animal. The most famous quote about the bond market’s power comes from former Bill Clinton adviser James Carville: “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 everybody.”
History is littered with cases of governments that were forced to abandon policies — or that even fell from power — because the bond market revolted. Just a few years ago in the UK, a mass sell-off by currency and bond traders forced the Tory government to abandon its plans for a massive deficit-ballooning tax cut and axe Chancellor of the Exchequer Kwasi Kwarteng, before then-Prime Minister Liz Truss herself was forced to resign after just 45 days in office. Banks like Citigroup were openly declaring that unless the UK got a different prime minister, the markets would continue to punish it. That is power.
I urge you to read the whole thing as it explains in great detail how they can and will do this and the pain it will likely cause to make that happen. The U.S. is not the U.K and they don’t have the ability to topple a government. However, he also probably correctly predicts that these Republicans and Trump cultists will find a way to pass this monstrosity anyway because they love tax cuts and want to appease Dear Leader. The results will not be pretty:
Trump’s second term began with him bringing the richest man in the world to DC, with a promise to slash spending, by trillions a year if Elon Musk had his druthers. Now, Musk is leaving DC in a huff, having not meaningfully cut spending at all and by all accounts disillusioned and frustrated at his failure. But Musk is not the last figure who might try to impose austerity on DC, and while he may have hundreds of billions of dollars, the bond market wields tens of trillions. DOGE was, in retrospect, a bad joke. The bond vigilantes’ coming attack may be something much more serious.