Our Economic Times: No Fiscal Crisis from Bond Markets

This column was published in Savannah Morning News.

Bond and other capital markets have the ability to aggregate different views about the future financial prospects of firms and governments. For instance, when inflation or the likelihood of default increases in an economy, lenders decrease their demand for an issuer’s existing debt, effectively punishing the debtor by driving up interest rates, making borrowing more costly. Greek 10-year yields eclipsing 25 percent in 2012 during the country’s fiscal melee is just a recent example of such bond vigilantism...