Sept. 30, 2014 SIGN IN | REGISTER

Bond Market Vigilantes Again Cheering Deficits

Bernanke was telling Congress that the tax increases and spending set to occur Jan. 1 and Jan. 2 will reduce economic growth far more than the other prime drivers of gross domestic product will be able to offset. He was using code to say that federal taxes should not be raised and spending should not be cut by as much (or at all) as will happen at the start of 2013. The mathematics of what he said or implied are inescapable: The budget deficit should be higher.

What’s curious about last week’s statements from Wall Street is that those making them somehow felt they needed to use the same hard-to-decipher code as
Bernanke and didn’t say directly that the fiscal 2013 budget deficit needs to be higher. 

Bernanke’s refusal to use plain language is somewhat understandable given the political dangers to him and the Fed if he speaks more directly about the need for higher budget deficits in an election year when the budget is a campaign issue. That makes the surrogate phrase “fiscal cliff” understandable, or at least somewhat excusable.

It’s less excusable for the deficit cheerleaders to be that indirect. 

Yes, Wall Street is still suffering low approval ratings and talking too openly about the need for higher deficits might hurt its credibility further with Main Street, where deficit reduction is favored by large margins. And, yes, Wall Street is still pushing for relief from many of the new laws and regulations put in place in response to the financial crisis. Doing anything to irk supposed or actual deficit hawks in the House and Senate might make that harder to do.

But regardless of the language they are using, at this point it’s nearly impossible not to see that Wall Street would welcome a plan that stops the fiscal cliff from going into effect or limits it in some way even though — or because — the federal deficit will be higher. There will likely be serious cheering if and when that deal is announced. 

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”

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