Deficit hawks are always on the hunt for excuses to fret over the budget, and The Wall Street Journal eggs them on by noting that rates rose a little bit on some Treasury bonds.While this could be just “noise” in the markets, “I think it involves a greater, long-term concern about deficits in the U.S., about Social Security being in a deficit,” said Brian Fabbri, chief economist North America at BNP Paribas. “And all of the concerns about the U.S. have been heightened by concerns about Greece.”
Hmm. So it could just be market volatility, except for the Social Security deficit. Unless, and I'm going out on a limb here, what if Social Security is not in a deficit -- what if it is in fact in a surplus? That Center on Budget and Policy Priorities study might lead you to conclude that this is just noise, unless you're someone who is "bedeviled by the haunting fear that someone, somewhere may be getting social insurance."
More broadly, this is what happens when you try to determine public policy from market movements: You get someone talking about a nonexistent program deficit. It's the same story with the so-called bond vigilantes, those mysterious figures who will ramp up interest rates when a Democratic administration runs a deficit but disappears into the bond-vigilante cave when Republicans do the same. The politics strike me as being more important than the economics. You may remember that the WSJ was warning of the return of bond vigilantes last spring, and we all know how that worked out: Yields and interest rates have remained stable.
-- Tim Fernholz
