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2017 | OriginalPaper | Chapter

4. The Bond Market

Author : George Bragues

Published in: Money, Markets, and Democracy

Publisher: Palgrave Macmillan US

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Abstract

I explore the linkages between democracy and the bond market. My main contention is that democracy, far from being constrained by the bond market, mostly exploits it in order to manage an ever-growing public debt. Democracy is shown to be conducive to the legitimation and growth of interest bearing debt in society, a tendency exemplified in the recent US sub-prime mortgage crisis. Rather than being inhabited by bond vigilantes, the bond market is an all-too-willing accomplice in democracy’s susceptibility to excessive debt accumulation.

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Officially at least, such agency debt does not count as full-fledged government securities. Whether state or privately owned, these entities are supposed to operate on a for-profit basis. Bond investors, though, have usually treated them as having a state guarantee on their debt. This view was corroborated at the height of the financial crisis in 2008 when the federal government effectively nationalized both Fannie Mae and Freddie Mac by placing them under conservatorship.

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Title: The Bond Market
Author: George Bragues
Publisher: Palgrave Macmillan US
Book: Money, Markets, and Democracy
Print ISBN: 978-1-137-56939-4

Electronic ISBN: 978-1-137-56940-0

Copyright Year: 2017
DOI: https://doi.org/10.1057/978-1-137-56940-0_4