Why do the bond vigilantes fear a growing economy?
I believe that bond prices are rising partially because of worries about the amount of debt and partially because of (IMO premature) enthusiasm about the economy. However what was very obvious to me for a very long time is that it would be nearly impossible for our monetary and fiscal leaders to navigate the Scylla and Charybdis of the bond markets to lead us to safety. Why? It’s all about timescales. I’m an armchair economist but professional timeseries analyst and the ignorance of time in economic theory is astounding. Simply put the long end of the curve will respond to long term dynamics and worries while the short end will respond to short term dynamics. The problem is that our monetary policy is focused on the short end, but the real economy borrowing is based on the long end, providing an interesting conundrum: in order for long term bonds to be priced properly they will have to rise in price before the increased economic activity happens (leading to the Fed raising rates) but t
