Democrats grouse that President Bush has recklessly frittered away the surpluses of the 1990's. Foreign finance ministers plan to express their alarm about America's Brobdingnagian budget deficit at a Group of 7 meeting in Boca Raton, Fla., this weekend. Even a growing number of Republicans argue that Mr. Bush needs to stop making excuses and cut government spending.
So what is the reaction from the bond market vigilantes, those disciplinarians who bid up interest rates whenever past deficits started looming? Yawn.
Since Mr. Bush released his budget proposal on Monday, forecasting a $521 billion shortfall for the current fiscal year, the interest rate on 10-year Treasury notes has actually fallen slightly, closing on Friday at 4.08 percent. Since August, when the deficit estimate was $475 billion, the rate has dropped from about 4.4 percent. The bond market, it seems, has stopped worrying and learned to love the deficit. The question, of course, is whether everybody else can relax, too.
There are some basic economic reasons for low rates, like an influx of foreign capital and the unevenness of the American economy, that have little to do with the deficit. But there also appear to be psychological reasons. Many economists say the bond vigilantes' muted reaction is both a symbol and a cause of the misplaced calm about the deficits, at least outside the Washington hothouse.
http://www.nytimes.com/2004/02/08/business/yourmoney/08big.html