What happened with bond yields last week
Something happened last Thursday.
A little line on a little graph went up a little more than people thought it would and capitalists held their breath. A little.
The United States Treasury ten year bond yield went up. To almost 1.6%.
Since it kind of impacts everything in capitalism, and what happens in capitalism impacts education, I thought I’d write a post on it.
Talking about bond yields, particularly day-to-day yields, is sort of like getting a chopstick in the brain. But I want to test myself here, so bare with me.
Lend me your rears
Consider two big questions.
First, how do you organize a massive society where people need provisions up front to do what they want and need? One answer is credit: lend the stuff.
In capitalism this means money, and loans have a price. That’s the interest rate, or what an investor can expect to yield for a bond buy.
And one big borrower is the United States federal government. Through its Treasury, it sells bonds to anyone who would buy them. The loans get called in at different times: 10 years, 5 years, etc.
The ten year bond is an important one because it’s a ‘benchmark’. When it gets more or less expensive to buy it, other prices everywhere listen up. And when prices listen up, there’s a chance they might go higher or lower as a result.
And when they go higher or lower it’s called some kind of -flation: inflation (up) or deflation (down). People don’t like these since they correspond to overall ‘stability’, and when prices change there’s a threat to the neoclassical fantasy of equilibrium. The ruling class have to watch their asses when prices go up and down.
What you get when you guzzle down sweets
The second big question is: What are the warning signs that capitalism might do one of its spasmodic hissy fits?
Inflation, when prices of stuff go up and money gets less valuable, is definitely an important one. It can be healthy but it’s also been the boogeyman of a lot of recent crises, most famously the rise of fascism in Western Europe.
So is inflation gonna happen? Maybe: a lot of people were selling 10 year treasury bonds last week. The price on them went up. Other prices listened up.
Why were more people buying them? Apparently, they’re worried about inflation due to vaccines, Biden’s fiscal relief plan, and a recovering economy.
As Marxist economists Michael Roberts puts it in a recent post about the current threat of inflation:
as the rollout of vaccines accelerates across the advanced economies and governments and central banks continue to inject credit money and direct funding for business and households, the wide expectation is that the major economies will make a fast recovery in investment, spending and employment – at least by the second half of 2021.
Now the concern is that, instead of a continued slump, there is a risk of ‘overheating’ in the major economies, causing an inflation of prices generated by ‘too much’ government spending and continued ‘loose’ monetary policy.
The 10 year bond rate increase may have been a sign of inflation, which is a sign of a capital hissy fit, which the ruling class watches out for. They treat it like Veruca Salt in Willy Wonka: always greedy, getting bigger, getting dangerous.
Why does this matter?
Reliably-not-awful financial journalist Joe Wiesenthal says, it’s not clear what a sell off in bonds is really supposed to mean:
Selloffs in the Treasury market are inherently more mysterious than stock market declines. Everyone gets their biases confirmed. Maybe it's good news, because investors are pricing in faster growth. Maybe it's bad news because the Fed is losing control of the yield curve. Maybe investors are starting to fret about inflation. Maybe it's the bond vigilantes rousing from their slumber, sending a message about big-time Washington D.C. spending plans. Choose-Your-Own-Bond-Market-Narrative.
So I’ll choose mine!
This has implications for reasons I’ve written about before: if there’s a credible threat of inflation, then the neoliberal zombie brains are going to be like “the government shouldn’t spend! It shouldn’t be generous! There’ll be inflation!”
It’s the same brain worm that pushes Biden and moderate senators not to find another Senate parliamentarian who’ll rule in favor a minimum wage. The same brain worm that doesn’t want big checks for the masses. The same brain worm that thinks national economies are the same household economies and don’t want to spend because they think prices will go up.
What’s at stake here is the neoliberal brain worm.
Of course, if there’s a threat of inflation, it could spur the Federal Reserve to raise rates, which will certainly cause inflation. If there’s actual inflation then prices of things go up and money gets less valuable. School’s pay more to borrow, state and local budgets go kerplunk, people have a harder time.
But I don’t think that’s what’s happening here. Personally, I don’t think there’s anything big around the corner. This all seems like a concerted effort to get Biden not to be generous by pressuring Powell to threaten to raise rates. It’s a campaign to maintain the neoliberal plan rather than do something else.
Socialists should keep an ear out for this stuff for a couple more reasons:
1) It’s a good moment to reflect on the broader question of provisioning people. How can we do this better than capitalism? Will we rely on credit markets? What’s our alternative vision? In our socialist society will there be treasury bonds? Should there be?
2) If capitalism’s stability is threatened, there could be events that lend themselves to transitions. We’re in an interregnum now and it’s important to watch the waves, there could be something big coming and we’ll want to ride it in the right direction towards another structure.
3) What the ruling class does under threats and pressures like this is a good measure of their mettle and where tensions and torsions might exist in the balance of forces.
Speaking of which, I think this little spike and how it got taken up is more evidence of neoliberalism’s waning hold on hegemony. We should push!